Now your correspondent loves a good paraphrase as much as the next socially progressive tax commentator. And so she had been largely unstressed about the use of the term capital gains tax by Jacinda on Wednesday or in any of the previous or subsequent discussion.
A comms device. Alg. Important to focus on the substance of the announcement rather than any technical nit picking.
But now I am not so sure.
Indulge me a minute. Call it background if you will.
Now what the Tax Working Group actually recommended was that more capital gains should be taxed. The majority – and me – thought a more comprehensive approach was best while the minority thought only gains on sales of residential rental should be taxed.
And the reason it was framed like that was because the tax system already taxes a number of capital gains: financial arrangements, certain types of land sales, leasehold improvements, employee share options and (sort of) returns from foreign shares.
It is true that by value lots are either excluded or administratively unenforceable. Looking at you assets purchased with the intention of resale.
But all the discussion was on extending income taxation to different asset classes that generated untaxed capital gains – rather a capital gains tax per se.
And here is why it matters.
While we don’t have a capital gains tax – over time, or incrementally as the minority put it, – successive governments have deemed specific capital gains to be taxable income when it is clear that untaxed gains are being substituted for taxable income. It has been the safety valve for the lack of a formal capital gains tax. And all done without any fanfare.
So it was with a degree of surprise upon watching Jenée Tibshraeny’s excellent interview of the Minister of Finance, I heard him say that an extension of the bright line test was unlikely because it would be too much like a capital gains tax.
Now I am really hoping that what he meant was: it is unlikely because there isn’t much substituting taxable income for capital gain with residential property. Rather than it is unlikely because any capital gain that is now untaxed will not be taxed while Jacinda is PM.
Because that would be a step backwards in terms of tax policy and make me properly sad.
So now really looking forward to that new tax work programme.
I did not read Robertson as saying any extension to tax anything that might be described as capital gain is off the agenda. Just that they will not introduce a cgt be stealth which is right and honest. For example a brightline of 1,000 years is a cgt. Also probably not a good idea to extend the brightline over 5 years. Means if property prices have increased then no way will anyone sell until brightline period past and that locks up housing market making it hard for new home buyers. Robin
Great. Hope you are right. Cheers