Blog description.

Accentuating the Liberal in Classical Liberal: Advocating Ascendency of the Individual & a Politick & Literature to Fight the Rise & Rise of the Tax Surveillance State. 'Illigitum non carborundum'.

Liberty and freedom are two proud words that have been executed from the political lexicon: they were frog marched and stood before a wall of blank minds, then forcibly blindfolded, and shot, with the whimpering staccato of ‘equality’ and ‘fairness’ resounding over and over. And not only did this atrocity go unreported by journalists in the mainstream media, they were in the firing squad.

The premise of this blog is simple: the Soviets thought they had equality, and welfare from cradle to grave, until the illusory free lunch of redistribution took its inevitable course, and cost them everything they had. First to go was their privacy, after that their freedom, then on being ground down to an equality of poverty only, for many of them their lives as they tried to escape a life behind the Iron Curtain. In the state-enforced common good, was found only slavery to the prison of each other's mind; instead of the caring state, they had imposed the surveillance state to keep them in line. So why are we accumulating a national debt to build the slave state again in the West? Where is the contrarian, uncomfortable literature to put the state experiment finally to rest?

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Thursday, September 4, 2014

Practical Example of How Unfair Labour’s CGT Will Be – Houses Brought Pre-CGT. You Need to Read This.

Labour candidate hopeful, and Massey University tax lecturer Deborah Russell – and I like Deborah so in the age of dreadful, dirty politics, I am at pains to point out this is about policy only - has blogged a piece to allay our fears over Labour’s proposed capital gains tax (CGT), which she says is a fair tax. Only, as you will see from our correspondence below on that thread, my fears are only heightened - sorry for lousy formatting, I've not time to fix it.

My first query under comments:

A spillover from Twitter, I understand you don’t want to debate there, but there is one question I have which is a serious concern, given how Labour’s CGT tax was being mooted by end of the last Labour government.

Namely, in calculating the profit on instigation of CGT the deduction (for houses bought pre-CGT) was going to be a valuation date (I think that would’ve been date CGT came into effect). If so I would face the following unenviable position: I purchased a holiday house (for my sanity) at the peak of a market. In the area concerned that house would now have a market value $250,000 to $300,000 lower than I paid (which I’m fine with because the house is about lifestyle and my sanity from stressful job, it was not bought as an investment). However, under current CGT, would my deduction on a future sale be original cost to me in 2007 (from memory), or a recent valuation point deemed in the legislation.

That is, say if a year after your CGT comes in I sell my house for exactly what I paid in 2007, thus no profit (and a loss in inflationary terms), is there correctly no capital profit under your proposed CGT, or is my deduction the valuation on day CGT starts (being $300,000 less than cost, which it now is), thus I will be stung with tax on a $300,000 fictitious profit?

Deborah’s Reply:

The CGT will apply to gains from the date of implementation. So the critical date for existing assets is the date from which the CGT law comes in. It’s right there in the policy: Labour’s Capital Gains Tax Policy.

But it’s an interesting problem, and one on which I presume you would put in a submission when the fine detail of the law is being hammered out. I can think of a solution right away, but I’m a little reluctant to leap into print on it without talking it through with people in my party.

And My Signoff Comment:

See, I'm stunned. You can see how unfair this is .... getting back to your notion of fairness.

Trouble is first time around - end of last Labour government - I was corresponding over this matter with the then minister (can't remember who, Dunne?) on simply changing the wording to 'deduction the higher of valuation on implementation date or original cost', and I was getting no traction at all. And how hard can it be to achieve the fairness in that simple clause? Problem is the Left don't worry about fairness to those of us paying the taxes, and I can't think of anything unfairer than that.

I believe Australia's CGT takes something up to one third of their taxing acts: it's a complex, unfair behemoth. So I hope to Rand we don't end up with a Labour/Green government, but all the best with your own campaigning.

(And if you want a 'laugh' I'm still trying to do the numbers on Maryan Street getting in on current polling at number 15. I see the only piece of worthwhile legislation that is likely over next three years - given National are socialists also - being the basic individual/family right back of dying with dignity, and despite possibility of being ostracised by fellow Libertarians, I will party vote Labour this once to make sure Maryan gets across the mark - do you know if she is in with Labour polling about 24%?)

All the best.

In summary, in case you missed it, and it’s a real world problem for me, the value of my holiday house on the date of implementation of Labour’s CGT is likely to be up to $300,000 lower than I paid for it, so if I sell it for exactly what I paid, no profit, I will be taxed on $300,000.

You decide how fair that is.

With that, I’ll give the final word to Deborah, as her closing comment:

Well, I think you and I both have the same solution in mind, Mark, and should we get a high enough party vote, I will be right there to argue for it. :-) So Party Vote Labour!

I am not consoled.


A partial resolution: hat-tip Geoff Nightingale, tax accountant - @Geoftax - not anyone from Labour who seems to know their own policy here, this issue will be going in front of the (increasingly important) expert panel, per page 10 of this link on Labour's site. Given CGT cases would be filling the tax courts on definitions alone, that panel would need to be Herculean to get this tax in place by 2015, which is what Labour plan.


  1. I think that cgt (if it ever comes in) should apply only to assets bought ON CGT DATE AND AFTER THAT, not on assets bought BEFORE CGT DATE. That's how it worked in Australia years ago and I suppose still does.

    1. While being implacably opposed to any new tax or any increase in tax, yes, I agree Barry. However, how did they get over intergenerational transfer of applicable assets? Or was such a transfer a deemed sale?

    2. Hello Mark

      I too am opposed to any new taxes or increases. I have now forgotten some of the detail in Australia but I think that kind of transfer was a " disposal" for the purposes of the Act - ie treated the same as a sale. I think the legislation reads something like " ... sale or other disposal...". I think from memory that an intergenerational transfer is an "other disposal". There are rules about calculating "cost" and disposal "price" in cases of "other disposals".

      I knew all about it once but I have forgotten a lot of it now. I'm sorry I can't be more help.

      (In NZ in your case if your pre-cgt-date asset is going to be subject to cgt on sale or other disposal it would seem that the legislation should at least give you the option of using the ACTUAL price [plus the cost of all capital spending such as improvements etc] in calculating the amount of the capital gain. [In Aus you could also add any holding costs - eg rates, insurance, interest [I think], etc which had not been eligible to have been claimed as expenses for income tax. This could happen in your case if no taxable income (eg rent) had been earned from the asset or had been earned for only part or parts of the period of ownership.])

  2. Mark, I should have mentioned the word "retrospective" which is what NZ cgt would be if it applied to assets bought before the law for it even came into being. I always understood that a tax should not be retrospective.

    1. Unfortunately as IRD has gained in power here, a lot of court precedents, as well as some tax law, has and is being implemented retrospectively. And I agree, a country where govt has power to do that, is one where govt. is operating above the rule of law.

      Thanks for reading Barry.

  3. Good comment Mark and raises a very important question. It'd be ludicrous if you couldn't use the higher of MV or cost like you state. However, I don't agree with Barry that a CGT should only apply to assets purchased after implementation as that would gut an already swiss cheese tax of its revenue raising capability for the medium term.

    It's interesting because for the purposes of the land provisions in subpart CB if you buy a home, lifestyle block or rental property (for example) and then a few years later carry out a major subdivision that brings it into the income tax net, your taxable gain is based on the value of the property at the time the subdivision started, and not its cost (at least to the best of my memory). So some taxpayers could conceivably already face this issue if the MV of their property had gone down from cost.

    As a libertarian I am opposed to further taxes but on the basis this statist, big-government 2-party system will continue I do want the tax system to be as broad base low rate as possible. Currently the lack of a comprehensive CGT is a glaring hole in the broad base.

    On the other hand, what the whole debate has shown in the last week or 2 is that everyone wants a comprehensive tax system for their neighbour, but only to pay for their own "entitlements" and their own exemptions / loopholes from the tax system. I'm starting to think that it is so hard to reconcile all the competing agendas and vested interests that as tax advisors we should be pushing to move away from taxes on income and capital altogether and replacing it with, say, increased GST or financial transaction taxes or something. Otherwise I see the tax system being used as a political football until the end of history.

    1. Great comments 'Nick'. Regarding your last thoughts yes, stop taxing income, including certainly interest and dividends, and move to a single indirect consumption tax (no financial transaction for me) to fund a much smaller govt spend.