Capital gains tax plan not geared for capital losses
The fact that the Tax Working Group wants to ring-fence capital losses shows that they haven’t come to grips with how a proposed capital gains tax would work when assets are losing value, Tenancies War spokesman Mike Butler said today.
“Property values have been increasing for a relatively long time so that the proposals released today appear to have assumed that prices will continue to increase forever, creating a goldmine for the Government”, Mr Butler said.
But the golden weather for investors is ending. The proposed capital gains tax comes on top of a raft of punitive changes for rental property owners which make property investment no longer attractive, driving property values down, he said.
Talk to any accountant. Now, many owners are unloading rental properties that have become loss-making liabilities and the Tax Working Group appears to have resorted to loss ring-fencing to avoid giving capital loss refunds to investors, Mr Butler said.
“It won’t be a matter of investors timing the sale of assets to their advantage,” he said.
“It will simply be a matter of investors selling for whatever they can to stop haemorrhaging cash to a loss-making investment,” he said.
We already have 116,000 negatively geared rental property owners who declare an average annual loss of $7138 who will sell if losses are ring-fenced if and when the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Bill becomes law.
Without those 116,000 owners, by the time a capital gains tax may become law the property investment environment will be vastly different than it is now with many selling at a loss, he said.
Weakness on capital losses is just one of the many problems with the proposal.
Capital gains will be charged at 33 percent for the majority of taxpayers – one of the most punitive capital gains tax regimes in the world, and more than twice the rate proposed by the Labour Party at the 2011 and 2014 elections.
The announcement of the proposed new tax was badly timed and coincided with news that more than 10,000 people are now waiting for a state house when under the previous government it was around 4000, he said.
Where will renters live when rental properties will be even harder to find than now? Mr Butler said.
Stop the War on Tenancies is a group that since last October has been highlighting the evidence that successive governments have ignored while creating rental property policy.