Bill Ralston: Curses upon the capital gains tax proposal

by Bill Ralston / 03 March, 2019
Photo/Getty Images

Photo/Getty Images

RelatedArticlesModule - capital gains tax bill ralston

Out here in small-business-cum-saver-land, the proposed capital gains tax is a gloomy prospect.

Curses upon Sir Michael Cullen and his Tax Working Group. They are giving me nightmares, not so much for what they are proposing, but because I cannot accurately assess what my personal liability would be if their recommendations are made law.

I suspect there are, despite the efforts of the media to pick apart and appraise the proposals, many people trying to get to grips with the implications of the working group’s report on the proposed capital gains tax (CGT). I hasten to add I am not a complete cretin in money matters. I did economics as part of my university degree and I handle tax issues for the small company that my wife and I own.

Let’s look at our business and savings and the effect of a CGT on them. We work from home and claim a proportion of the mortgage interest paid on our house as a business expense. Under the Cullen proposal, it would seem that when we sell the family home, it will be liable for CGT. Hang on – a CGT won’t apply to the family home, will it? Yes, it will, if you use the home for business and claim on that.

The answer seems to be to stop claiming on home-related business expenses, although that means our small business will be carrying greater costs and our income will drop.

With a weather eye on our advancing age, we are also renovating the sleep-out on the property with the idea that, if we are reduced to eating cat food when we stop work, we can rent it out as, say, an Airbnb for a little extra cash. But the proposed tax takes the gloss off that plan. Too bad if you have to quit the property because your health requires you to be dragged off to a home for the elderly and bewildered: while you have been paying tax on the Airbnb income, you also lay the family home open to CGT on any increase in its value from when the tax is brought in.

Well, we’ll just have to work harder and pour more cash into the business to generate extra income. The problem there is 33% of any increase in the value of the business when you eventually sell it will go in CGT.

Thank heavens we have some savings. I’m over 65, no longer in KiwiSaver and have money in an investment fund. When we stop work, the investment dividends will provide a small National Super top-up. But hang on, the CGT on shares will inevitably impose a cost on the fund and reduce its value. Sob.

So, when the CGT comes in, should we sell our business, take the cash and run? We could, but the new tax would significantly reduce the proceeds.

My head hurts. Actually, that’s just as well because, somehow, it is suggested that a CGT will apply to intellectual property and it would probably be best if I simply stopped thinking to avoid getting any good ideas that are taxable.

Prime Minister Jacinda Ardern and Finance Minister Grant Robertson say they are looking at making the tax system, which they also admit is working well, fairer. In any case, Robertson says, the Government hasn’t made a decision yet about what happens next. That will happen next month.

All I can say to them is, as a pensioner and small-business owner, don’t make it less fair for me and others when you finally make up your minds.

This article was first published in the March 9, 2019 issue of the New Zealand Listener.


Science must trump ideology in the GE debate
104784 2019-04-18 08:52:29Z Politics

Science must trump ideology in the GE debate

by The Listener

A New Zealand-developed super-grass that appears to drastically reduce greenhouse gas emissions might be blocked in this country by the Green Party.

Read more
Simon Bridges hails PM Jacinda Ardern's capital gains tax u-turn as victory
104803 2019-04-18 00:00:00Z Politics

Simon Bridges hails PM Jacinda Ardern's capital ga…

by Jo Moir

The National Party is calling the u-turn on a capital gains tax a massive failure for the Prime Minister.

Read more
John Campbell is replacing Jack Tame on TVNZ's Breakfast show
104860 2019-04-18 00:00:00Z Television

John Campbell is replacing Jack Tame on TVNZ's Bre…

by Noted

The TV network is switching things up - again.

Read more
John Lanchester’s ecological-dystopian tale about a barricaded Britain
104431 2019-04-18 00:00:00Z Books

John Lanchester’s ecological-dystopian tale about…

by Catherine Woulfe

The Wall may be speculative fiction, but it feel like it's just round the corner.

Read more
Why we should take care when we talk about drug side effects
104426 2019-04-18 00:00:00Z Psychology

Why we should take care when we talk about drug si…

by Marc Wilson

If we find that up to 10% of people report insomnia after taking Panadol, does that mean it was a side effect of the drug?

Read more
Capital Gains Tax debate should have been a godsend for Simon Bridges
104754 2019-04-17 00:00:00Z Politics

Capital Gains Tax debate should have been a godsen…

by Bevan Rapson

Talk of a capital gains tax hits a particular nerve, but changing the tax system doesn’t always have to be like pulling teeth.

Read more
Government abandons capital gains tax plan
104759 2019-04-17 00:00:00Z Politics

Government abandons capital gains tax plan

by Noted

No consensus was reached over the capital gains tax recommendation.

Read more
How tough is it for the middle class in New Zealand?
104675 2019-04-17 00:00:00Z Social issues

How tough is it for the middle class in New Zealan…

by Pattrick Smellie

Money worries have set off a wave of populist politics in most Western democracies, but not here. Pattrick Smellie investigates why.

Read more