CTG death, gift duty by stealth

Labour says its proposed capital gains tax won’t be imposed on the family home or farm homesteads.

But there is a proviso – the area used for business will be liable for the tax.

I don’t know of any farmhouse which isn’t used for business, though just where the line between farm and home is crossed could be debatable.

If a farmer has a bright idea in the bath, or lies awake counting sheep would the bathroom and bedroom be considered part of the business or home?

Farms aren’t the only businesses to be run, at least in part, from home and they too will be hit by the proposed CGT.

Of equal concern is that the tax would effectively reintroduce death duties:

Under proposals unveiled by Phil Goff this week, assets passed on to children would not create an immediate capital gains tax liability. However, Ernst & Young tax partner Jo Doolan said when the assets were eventually sold, the new owner’s liability would be based on the value of assets when it was originally bought, not the value when the asset was inherited.

“Essentially it’s a back-door estate-duty-type tax that’s coming back in” if Labour was elected, Ms Doolan said.

“They’re saying it will only impact on a small percentage of New Zealand, but most New Zealanders, at some stage, will inherit a property or some other assets, and the minute they sell, they are taxed at the original cost.”

Death duties caused lots of work for lawyers and accountants and imposed costs which threatened businesses. Reintroducing them, albeit by stealth as a CGT, would be a backward move.

Wairarapa sheep and beef farmer Anders Crofoot described the tax as “death duty by stealth”.

Mr Crofoot said because of the asset-heavy nature of farming, the industry would be hit harder than other types of small business by capital gains tax, where less capital investment was required.

“If you’re going to whack 15 per cent off that every time it changes hands, it makes that very difficult.”

Mr Crofoot said he believed that in theory capital gains tax could be fair, but once exemptions for different types of assets were introduced, it created a new supporting industry for lawyers and accountants to advise clients on ways to avoid the tax.

CTG in theory isn’t all bad, but Labour’s complicated one is a dogs breakfast which disincentivises business success and directs energy to avoidance.

Every minute of business time wasted on trying to minimise tax liability is a minute not devoted to productive, wealth generating activities.

John Shewan, the chairman of PricewaterhouseCoopers, said the proposals were “manna from heaven” for accountants, predicting a vast body of work for financial planners to advise wealthy clients on how to navigate through the exemptions.

“We’re recruiting, we’re going to triple our staff,” he quipped.

“But in all seriousness, as an overall tax, while there are definitely pros and cons for a capital gains tax, this one is extremely complicated. It’s got some amazing features which I think really bring it down under its own weight.”

A clean capital gains tax with no exemptions, balanced by reductions in other taxes, might have a place.

But Labour’s proposal is for a dirty tax, complicated by exemptions and one which reintroduces death and gift duty by stealth.

30 Responses to CTG death, gift duty by stealth

  1. alex Masterley says:

    I am a lawyer. I use part of my home for business purposes. Most of my colleagues do as well. we will be slugged as a consequence.

    I lie bed thinking about client issues, generally between 3am and 4am. So you can expect my half of the matrimonial bed to subject to CGT.

    And then you have the issues of the hobby farm or orchard. They will suddenly stop being farms or orchards and become family homes.

    I suppose as a lawyer I should be overjoyed about the proposed CGT as it will result in alot of business, but having regard to the charlatans whose brainchild it is there is no way in a month of sundays that I will.

    I will be entertaining myself drafting a series of questions for candidates meetings that will make Labor candidates squirm.

    Like

  2. robertguyton says:

    Cunliffe on Q&A on CGT, excellent. Hope you are watching. Labour’s proposal is being delivered masterfully, alex.

    Like

  3. robertguyton says:

    Gareth Morgan agrees the Cunliffe’s borrowing projections are easily do-able!
    Morgan is bright!
    Cunliffe is brilliant!

    Like

  4. robertguyton says:

    Gareth Morgan on bringing in the ETS for agriculture 2 years early.

    Complete agreement.

    Like

  5. Adolf Fiinkensein says:

    Aaaaah Robert. So Gareth Morgan is your momentary hero of the day? Got your retirement savings with him, have you?

    Consistently the lowest returns from the worst performing fund manager.

    Like

  6. Sally says:

    I posted this message on Labour’s ownfuture web site yesterday around 11am. STRANGELY the comment has not appeared.

    “Labour is on the wrong track”
    “The results have been spectacular. After long being a case study in jobless growth (except in the bloated public sector), Sweden has become a big creator of private-sector jobs. The government has narrowed the “tax wedge” that deters employment and whittled away at sickness benefits: Sweden no longer stands out for welfare excesses. The retirement age has risen to 67. Inheritance and wealth taxes have gone. Mr Borg and Mr Reinfeldt believe firmly in ownership as a driver of prosperity.”

    Like

  7. robertguyton says:

    Adolf – yep. Nope.
    I trust his judgement on the two issues dealt with on Q&A though.
    Not a fan of his opinion?

    Like

  8. alex Masterley says:

    Q&A?
    Quite frankly I have better things to do than watching egos being stroked.
    Morgan is a legend in his lunchbox.

    Like

  9. Roger Barton says:

    The statement has been made that all livestock will come under the CGT. Can someone explain to me what the difference is between my means of production (i.e livestock) and my brother in law who owns an industrial mouldings company (producing plastic bottles) with the use of high value machinery which is part of the working capital requirements of his business. If they are going to treat these components of business seperately I am agrieved. It is unclear.
    I fear the level of exemptions will dilute what they are attempting to do. It must be ALL the capital in the business or none.

    Like

  10. Alwyn says:

    I wonder if the exemption from CGT of the house on a farm suddenly appeard when Phil G. realised that HE was going to get caught.
    His home is, after all, a farmlet south of Auckland. You can be quite sure that he has been claiming all sorts of expenses as being part of the cost of running the farm.

    Like

  11. Quintin Hogg says:

    I’m more interested in the proposed exemption for art and other emphemera.

    Cordy’s and the other local auction houses will find increased interest in their specialist auctions.

    Roger, CGT is very easy to say. But difficult if not impossible to understand

    Like

  12. pdm says:

    What about the matrimonial bed wher business people of all persausions initiate the producing of sons and daughters to take over the family business.

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  13. Tired Farmer says:

    Robert Guyton backs Gareth Morgan re his statement regarding bringing in agriculture under the umbrella of the ETS two years early. Q&A 17/7/11

    Suggested reading to counter these thoughts has been written by Robin Grieve, info@farmcarbon.co.nz and by
    http://www.climate realists.org.nz

    Like

  14. Tired Farmer says:

    My apologies. second address in my post 12.27 today should read http://www.climaterealists.org.nz

    Like

  15. robertguyton says:

    Tired Farmer – no, you’ve misread my admittedly ambiguous comment. I’m saying Gareth morgan completely agreed with labour’s proposal to bring agriculture into the ETS 2 years earlier.
    I made no comment about my own view.
    You’ll know by now that Monkton is expected to come to NZ to pedal his mad climate denying wares?
    Should be a hoot!

    Like

  16. Gary says:

    So if my parents pass on their home to me in their will and I then sell it, I have to pay 15% (as I already have a family home) but if they sell it first then pass on the money it is untaxed? More work for the tax accountants and estate-planning lawyers… At least they will be pleased with Labour!

    Like

  17. Cadwallader says:

    What is forgotten here is: NZ does not need nor can afford any more taxes, no matter what form the tax may take.

    Far too much money is being drawn out of the economy by government after government for frivolous reasons and collectivised wastes. It is pointless to argue this latest tax idea without arguing for the need for punitive compulsory tithing to be reduced to pay for essentials alone. It matters not whether this legalised extortion is a CGT, a GST, an FBT or whatever other pillaging which may be conjured up. It doesn’t matter either whether the revenue is motivated by envy, it is the damaging effects it does to the economy which is arresting.

    Like

  18. Sally says:

    Monkton is no more mad than the warmist movements’ hysterical claims.

    Like

  19. robertguyton says:

    “What is forgotten here is: NZ does not need nor can afford any more taxes, no matter what form the tax may take.”

    Didn’t National raise the Goods and Services Tax recently?

    Crikey Cadwallader – get on the phone, pronto!

    Like

  20. Cadwallader says:

    RG your assumptions are so silly.

    Back to the topic: I specifically included each party in my “government after government” reference.

    Like

  21. homepaddock says:

    Robert – National did raise GST but lowered other taxes and reined in spending to compensate.

    Labour’s plans will result in a net gain in tax and they have no commitment to decreased spending.

    Like

  22. Inventory2 says:

    Wrong Ele; for the first six years of an incoming Labour government, nett tax revenue will fall. Labour has already admitted that it will need to borrow more than the record amounts that the Nats are currently borrowing. Given that Labour has promised tax cuts in the form of fresh fruit and vegetables being exempted from GST and in the $5000 tax-free threashhold, there is only one thing to say:

    Labour is borrowing to fund tax cuts!

    Sadly, the irony is probably lost on the Labourites, who have spent the last three years hectoring the government for doing exactly that!

    Like

  23. homepaddock says:

    I2 – all those extra costs and complications and still they’d have to borrow more to fund the cuts. How mad is that?

    Like

  24. pdm says:

    Lord Monkton has always appealed to me as one of the saner people in the Climate change debate.

    Like

  25. Inventory2 says:

    Oh dear; the numbers just got a whole lot worse. No wonder they didn’t want to release them!

    http://keepingstock.blogspot.com/2011/07/numbers.html

    Like

  26. The Labour position as expressed on The Nation was
    “if you were happy to take the depreciation and other tax benefits then you will have to face the CGT. You can’t have it both ways”
    All those of us who have home offices have been warned!
    James McGehan

    Like

  27. robertguyton says:

    Scramble team! The people are buying it! Must obfuscate!

    pdm – I’m carving your comment into a block of tofu then selling it on trademe –

    “Lord Monkton has always appealed to me as one of the saner people in the Climate change debate.”

    Magic!

    Evolution – it’s a crock, eh pdm!

    Like

  28. Cadwallader says:

    My 15 year old has decreed: (RG will love this!) CGT = Confused Goff Twaddle!

    Given the weakness of his responses to Ross yesterday, I’d love to witness a debate between the Minister For Riverton Swamplife and Lord Monckton.

    PS RG: I’m not name calling I am investing you with a title. My generosity knows no limits for those who require all the altruism the world can muster!

    Like

  29. robertguyton says:

    Cad – Ross provided me with no real challenge. He took a very long time to grasp my point and I had no desire to hold his hand til he did.
    Thank you so much for the investiture. It’s not my first, but I appreciate the amount of thought you’ve put in and I’ll make you proud.
    My first action will be to respond to the invitation to debate with the Mad Lord, with a ‘no thanks’. That’s as much energy as anyone should devote to Monckton and his un-hinged theory. You, on the other hand, would find his witterings fascinating and might well sign up as a Mini-Monckton and join him on his idiotic tour of the (flat) world. Might I bestow you with a title Cad? I’m toying with ‘Walloper of the Cod’. Had I a sword at hand, Walloper, I’d be more than happy to use it on you.

    Like

  30. Roger Barton says:

    From NZ Herald Live Chat:

    Comment From Max: If I spend money (say a dollar) on a bach and this increases the eventual sale price by one dollar, does this mean I will have to pay 15% GST when I spend my dollar, then be taxed 15% CGT on it when I sell? Seems a bit harsh?
    Tuesday July 19, 2011 2:59 Max
    3:01
    David Cunliffe:
    Hi Max. You won’t pay any retrospective CGT on any gains before valuation day. You won’t pay a cent until the bach is sold. And if it is a family bach, it can be passed down to your kids with no CGT applying at the time of your death. More specifically, CGT is only paid on the net gain, so if you paid $1 on renovations and it only increased the value by $1 there would be no CGT to pay. BUT you might want to get a different builder!

    Well Elle this makes even more of a nonsense of the model proposed. Really makes it an accountants dream package.
    So every improvement I make on farm will not add to the CGT component at point of sale. I’m not sure Mr Cunliffe, or his mates, actually intended this?

    Like

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