About that CGT

I’ve been tweeting about Labour’s proposed CGT.

  • Nats are scaremongering on Capital Gains Tax. Making up a bogie, pointing at it histrionically, and trying to alarm people.
  • Standard way to form tax law is to work out broad outlines of policy, then officials work up the details. #CGT
  • Broad outlines of Labour’s CGT – second properties will be subject to CGT when they are sold. Family home will be exempt #CGT
  • One possible model is Australian. Selling house triggers a CGT event, but exemption can be claimed for “main residence”. #CGT
  • If you inherit a house, then CGT would apply from date of acquisition until when you sell. #CGT
  • Exact “time of acquisition” a fine detail to be worked out as part of tax policy process. Bog standard way of drafting law. #CGT
  • CGT would only apply when assets are sold. So seller will have cash in hand to pay tax. #CGT
  • CGT is set at low rate of 15%, to allow for effect of inflation. #CGT
  • Other OECD countries manage to run sound CGT rules. We can too. #CGT
  • Lots of reasons to have a CGT. One I like most is fairness. Income earned quickly as salary and wages is taxed. #CGT
  • But income earned slowly as capital gains is not. Seems prima facie unfair. #CGT
  • We draw an artificial distinction between “capital” and “revenue” / slow earned and quick income. CGT will redress that a little. #CGT
  • Standard part of law making process is to sort these details out. Basic principle: selling assets attracts CGT (1/2) #CGT
  • But there are some exemptions, including family home. (2/2) #CGT

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4 Responses to About that CGT

  1. A spillover from Twitter, I understand you don’t want to debate there, but there is one question I have which is a serious concern, given how Labour’s CGT tax was being mooted by end of the last Labour government.

    Namely, in calculating the profit on instigation of CGT the deduction (for houses bought pre-CGT) was going to be a valuation date (I think that would’ve been date CGT came into effect). If so I would face the following unenviable position: I purchased a holiday house (for my sanity) at the peak of a market. In the area concerned that house would now have a market value $250,000 to $300,000 lower than I paid (which I’m fine with because the house is about lifestyle and my sanity from stressful job, it was not bought as an investment). However, under current CGT, would my deduction on a future sale be original cost to me in 2007 (from memory), or a recent valuation point deemed in the legislation.

    That is, say if a year after your CGT comes in I sell my house for exactly what I paid in 2007, thus no profit (and a loss in inflationary terms), is there correctly no capital profit under your proposed CGT, or is my deduction the valuation on day CGT starts (being $300,000 less than cost, which it now is), thus I will be stung with tax on a $300,000 fictitious profit?

    • Deborah says:

      The CGT will apply to gains from the from the date of implementation. So the critical date for existing assets is the date from which the CGT law comes in. It’s right there in the policy: Labour’s Capital Gains Tax Policy.

      But it’s an interesting problem, and one on which I presume you would put in a submission when the fine detail of the law is being hammered out. I can think of a solution right away, but I’m a little reluctant to leap into print on it without talking it through with people in my party.

  2. See, I’m stunned. You can see how unfair this is …. getting back to your notion of fairness.

    Trouble is first time around – end of last Labour government – I was corresponding over this matter with the then minister (can’t remember who, Dunne?) on simply changing the wording to ‘deduction the higher of valuation on x date or original cost’, and I was getting no traction at all. And how hard can it be to achieve the fairness in that simple clause? Problem is the Left don’t worry about fairness to those of us paying the taxes, and I can’t think of anything unfairer than that.

    I believe Australia’s CGT takes something up to one third of their taxing acts: it’s a complex, unfair behemoth. So I hope to Rand we don’t end up with a Labour/Green government, but all the best with your own campaigning.

    (And if you want a ‘laugh’ I’m still trying to do the numbers on Maryan Street getting in on current polling at number 15. I see the only piece of worthwhile legislation that is likely over next three years – given National are socialists also – being the basic individual/family right back of dying with dignity, and despite possibility of being ostracised by fellow Libertarians, I will party vote Labour this once to make sure Maryan gets across the mark – do you know if she is in with Labour polling about 24%?)

    All the best.

    • Deborah says:

      Well, I think you and I both have the same solution in mind, Mark, and should we get a high enough party vote, I will be right there to argue for it. 🙂 So Party Vote Labour!

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