As we drill more and more into the details of the TWG report, it is becoming clear how far reaching their proposed capital gains tax (CGT) has become. Essentially, you will not ever be affected by CGT so long as you never own any assets, have no retirement savings, including Kiwisaver, and never inherit anything. You can have a fantastic art collection, but you will have to have it displayed under a bridge. Otherwise, even if you don’t think you will be affected, you will be… at some point.
First, there is the question of lifestyle blocks. Even if you have lived your whole life on a lifestyle block, it does not qualify as a family home. Not the TWG’s definition of it anyway. quote.
Lifestyle block owners may be in for a shock if the Capital Gains Tax goes ahead in 2021.
Under the recommendations of the Tax Working Group, land that is larger than 4,500 square metres will be subject to the tax.
There’s no mention lifestyle blocks will be exempt like family homes, or treated like farms, which allow for the house and surrounds to be left tax-free.
Real Estate Institute chief executive Bindi Norwell said the median size of lifestyle properties sold in New Zealand in the last 12 months is 20,000sqm.
On the basis of that data, she believes 92 per cent of lifestyle blocks sold across the country last year would be taxable.
Kiwiblog end quote.
92% of lifestyle blocks, most of which are primary residences, will be liable for CGT when sold. So, a million dollar apartment in Auckland’s CBD is exempt, but a piece of land with a house on it in Shannon worth $350,000 is caught by the tax.
Seems fair, doesn’t it?
Do you have a home office? You go home after work and do your paperwork until 10.00 at night? IRD allows you to claim some of your house expenses if you use your home for work. However, if you do have a home office, then your house does not qualify as a ‘family home’ and will be liable for CGT on sale. So business owners are hit twice, with both the business itself and the family home being liable for CGT, for no other reason than because they work hard.
Seems fair, doesn’t it?
What about if you take in flatmates? Young people, particularly single people, trying to get on the home ownership ladder by bringing in flatmates to help pay the mortgage will also find that they will have to pay CGT on the sale of the property, because it was not just a ‘family home’. I assume this applies to people who house foreign students as well. In fact, it gets even worse. If you have a boarder – even a family member, such as an adult child, who pays rent in any form, you are caught by the CGT rules.
Does that seem fair to you?
Have you ever rented out rooms in your house on Air BnB? Lots of people rent out their spare rooms to foreign travellers to earn a bit of spare cash. Even if you don’t do this often, too bad. When you sell your home, it will be liable for CGT.
Does any of this seem fair to you?
So, the claim that the family home is exempt from CGT is wildly inaccurate. Your family home will be exempt from CGT so long as you never rent it out in any way, shape or form, or do any type of work in it. All this means that a very significant number of family homes will actually be caught in the CGT net – far more than anyone seems to realise at the moment.
When you understand that Michael Cullen thinks that anyone who earns over $70,000 per year is a ‘rich prick’ (he proves this because there are proposed provisions for relief on Kiwisaver accounts for the effects of CGT, but only if you earn less than $48,000), you will understand why all of this falls under their definition of ‘fairness’.
There is nothing fair about any of this. This is a tax grab of monumental proportions. This tax must not go ahead in any shape or form.