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- Comms & Events
Rate of Return Tax should not apply to family home.
This is not a housing capital gains tax, if it was it would be simple to understand, debate, and structure. Many countries have capital gains taxes - we would have plenty of experiences to evaluate the effect of the tax. Instead, it's a new tax - a tax based on the perceived "risk free rate of return" that you could get for your money that you've spend because you are considered not a "productive investor" because you've built / bought a house. This tax will be applied even if your house value does not go up. I'm surprised that this idea got past the beer and pretzels stage. Firstly, the levels stated (6%?) are not real currently. The "risk free rate of return" currently in NZ is about 2% (Government bonds) not 6% - so income achieved through this tax is about 1/3rd of the proposal and will not balance the books for income tax relief. Secondly, it seems to attack on of NZ's basic wants - which is to own your own house. There are many people who own one house - who are cash poor - and cannot pay this proposed tax. The ideas of reverse mortgages and deferred tax bills of hundreds of thousands of dollars are sure to cause issues in retirement and when moving to aged care / nursing homes. If the tax was proposed on secondary houses, as well as all investment and rental properties then there would be acceptance that these properties are set-up for income, and rentals should be aimed at a level that does provide a return. In this case negative gearing using interest would become a foolish practice .. and the policy would make sense. However, as it stands it seems to me that the proposal is far too wide ranging - and far too disruptive - to the New Zealand psyche to have any chance of acceptance or success. Start the scope with investment properties / rental properties / secondary homes and you have a chance to prove the worth of the scheme is a far less threatening way. A "Rate of Return" tax on all properties? No way.
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