The bright-line test ensures capital gains are sometimes taxed on residential property, while anyone buying shares with the intention of resale must also pay tax on any gains. Photo / 123rf
The bright-line test ensures capital gains are sometimes taxed on residential property, while anyone buying shares with the intention of resale must also pay tax on any gains. Photo / 123rf
THREE KEY FACTS
The capital gains tax debate resurfaces, highlighted by Treasury’s concerns about reliance on personal taxes.
Previous attempts at implementing a capital gains tax have faced significant political resistance and public distrust.
Investment Director Mark Lister expresses cautious support for a well-structured capital gains tax reform.
Mark Lister is Investment Director at Craigs Investment Partners.
The bright-line test ensures capital gains are sometimes taxed on residential property, while anyone buying shares with the intention of resale must also pay tax on any gains.
We probably do need to have a look at our tax base.
Wage and salary earners seem to get whacked more every year, as personal income tax rates rise and inflation ensures the higher income brackets kick in earlier.
Meanwhile, untaxed gains from rising asset prices are one reason for our love affair with property.
That’s contributed to our extremely expensive housing market, and in turn rising inequality and many of our social issues.
As much as I’d like to see that change, I fear the politicians will get it wrong when it comes to the detail and implementation.
The proposal from Ardern’s working group was full of inconsistencies.
It suggested international shares be taxed in a different way to local stocks, and big fund managers treated differently to smaller investors.
There’s also the ongoing debate about whether you tax people when they eventually sell, or more frequently on the way through.
The former means delayed revenues for the Government, while the latter means asking people to pay tax on gains they haven’t even realised yet.
Some assets can also be difficult to value.
I could support a CGT if it was well-constructed and at a modest rate, writes Mark Lister. Photo / Supplied
Housing is relatively straightforward, while listed shares and managed funds are priced regularly (if not daily).
It gets much trickier for farms and agricultural land though, and harder still when it comes to private businesses.
It’s likely that any proposal would exclude the family home, as is the case in many other jurisdictions.
That’s an understandable compromise, although purists would still argue it dilutes the impact of a CGT.
I also worry about the possibility of unintended consequences on asset classes like shares and businesses.
That concerns me, as we need to push capital and savings toward those productive, job-creating parts of the economy.
Despite all of that, I’m open-minded about tax reform.
I could support a CGT if it was well-constructed and at a modest rate.
In return, I’d expect an accompanying reduction in income taxes.
For me, that’s crucial for it to be a genuine rebalancing exercise.
It would shift the focus toward genuine income and cash profits, helping encourage better investment decisions.
Otherwise, a CGT is simply another tax on top of what we’re already paying.
That brings me to another likely bugbear the voting public will have with any proposal, which is how our money is being spent.
Many high earners and asset-rich voters are not opposed to paying taxes, or being taxed in a different (and sometimes less favourable) way.
However, they want that capital to be used wisely and effectively.
Unfortunately, poor decisions and frivolous spending choices in recent years have dented the credibility of our politicians.
That trust needs to be rebuilt before voters will entertain, let alone embrace a CGT.
Mark Lister is Investment Director at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision Craigs Investment Partners recommends you contact an investment adviser.
