Latest / Best of Business / Bruce Bernacchi: Dentons tax partner on the impact of Labour's proposed capital gains tax

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Bruce Bernacchi: Dentons tax partner on the impact of Labour's proposed capital gains tax · Best of Business

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  Speaker 1: You're listening to a podcast from Newstalk ZB. Follow this
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• 0:30
  Speaker 2: Newstalk ZB. Now, matters pertaining to Friday. On Friday, I
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  Speaker 2: had a text asking if we could please invite a professional.
• 0:37
  Speaker 2: onto the programme to discuss the impact of Labour's CGT
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  Speaker 2: on businesses. Many people deny that the sale of business
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  Speaker 2: will be impacted. Denton's tax partner, Bruce Bernacchi, is our
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  Speaker 2: go-to man. Never thought I could be excited about talking
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  Speaker 2: to somebody about tax. But with Bruce I am. He
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  Speaker 2: was busy on Friday at an IRD webinar about the
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  Speaker 2: government's new taxation bill. So with the very latest information,
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  Speaker 2: Bruce Bernacchi, Denton's tax partner, joins me now. Good morning
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  Speaker 2: to you, Bruce.
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  Speaker 3: Good morning, Kerry. Great to be here. I'm pleased to
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  Speaker 3: hear that you're excited about talking tax.
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  Speaker 2: Well, I am because you make sense of it and
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  Speaker 2: you make me understand it. Otherwise, I just look at
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  Speaker 2: it and my eyes cross. So when it comes to
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  Speaker 2: Labour's CGT, what will be the impact, do you believe?
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  Speaker 3: Well, look, it's only going to apply to residential investment properties.
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  Speaker 3: So that's houses excluding the family home and excluding farms
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  Speaker 3: and lifestyle blocks. and commercial property, so buildings, commercial buildings
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  Speaker 3: that are typically either used by a business themselves or
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  Speaker 3: more commonly leased out to a business. So those are
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  Speaker 3: the only two asset classes that are going to be
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  Speaker 3: brought into it. So the only impacted businesses will be
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  Speaker 3: ones that actually own property. They will be the only
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  Speaker 3: ones directly impacted. So I know there's been a lot
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  Speaker 3: in the media and a lot of memes on social
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  Speaker 3: media about, you know, Labour isn't sure themselves whether businesses
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  Speaker 3: are hit or not by their CGT. And I think
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  Speaker 3: the answer is it depends. So if you've got a
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  Speaker 3: business that owns the property they operate out of and
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  Speaker 3: then sell that property, they could be impacted.
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  Speaker 1: Right.
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  Speaker 2: But say I'm the clever, clever young man who set
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  Speaker 2: up Holter. When I sell that for squillions to a
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  Speaker 2: tech company, that my gains are not going to be taxed.
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  Speaker 3: That's correct. So gains on the sale of shares are
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  Speaker 3: or any other asset type other than property, is not
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  Speaker 3: going to be caught by their CGT. And that's why,
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  Speaker 3: when you look at what they're going to use the
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  Speaker 3: money for, it's a relatively narrow item of expenditure, which
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  Speaker 3: is your free doctor's visits.
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  Speaker 2: Right. They might not get enough for that unless they
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  Speaker 2: start taxing other things.
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  Speaker 3: That's right. And the other point is it's only going
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  Speaker 3: to apply to gains... earned or derived after the 1st
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  Speaker 3: of July, right? So you'll be required to value your property.
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  Speaker 3: I mean, if it's a residential, you can rely on
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  Speaker 3: council valuations, presumably. But it's only gains that accrue after
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  Speaker 3: the 1st of July. And we all know that certainly
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  Speaker 3: in the residential market is pretty flat at the moment,
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  Speaker 3: not many gains at the moment and not many gains
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  Speaker 3: on the horizon. I'm less familiar with the commercial market,
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  Speaker 3: but you do have to wonder, and particularly if people,
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  Speaker 3: you know, put off from selling properties as quickly as
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  Speaker 3: they might otherwise have done because they'll have to pay
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  Speaker 3: tax on any gains. It could be quite some time
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  Speaker 3: before material amounts of money are earned from the tax.
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  Speaker 2: You'd have to wonder where they're going to get the
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  Speaker 2: money from then.
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  Speaker 3: Yeah, you do.
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  Speaker 1: You do.
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  Speaker 3: And look, I'm not privy to their modelling and maybe
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  Speaker 3: that's why it's been quite quite narrowly targeted at the
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  Speaker 3: free doctor's visits, but there surely must be a mismatch
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  Speaker 3: for the first few years while this thing ramps up
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  Speaker 3: and you actually start getting gains accruing and getting taxed
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  Speaker 3: versus people are going to want their free doctor's visits
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  Speaker 3: straight away.
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  Speaker 2: Yeah, exactly. What do you make of the KiwiSaver announcement?
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  Speaker 3: Yeah, that was interesting. Look, what was nice to see
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  Speaker 3: is that Labour and National are not miles apart. I mean,
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  Speaker 3: they're both proposing now to raise the employer contribution up
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  Speaker 3: to 6%, which I'm definitely in favour of. I think
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  Speaker 3: there's a general recognition out there now that we can't
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  Speaker 3: keep funding national super for everybody in the way we're
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  Speaker 3: doing at the moment with the ageing population. So something
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  Speaker 3: has to change. So I think that's good. Where the
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  Speaker 3: two major parties differ is the level of employee contribution,
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  Speaker 3: where Labour wanting to top that to top out at 4%
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  Speaker 3: versus national 6%. And Labour's, as you would expect, is
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  Speaker 3: a bit more employee-friendly in that if someone takes a
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  Speaker 3: contribution holiday for their employee contribution, even down to 0%,
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  Speaker 3: the employer contribution is still going to get paid, which
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  Speaker 3: I can see why they're doing that, that if someone
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  Speaker 3: is really hitting financial difficulties and can't afford to contribute
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  Speaker 3: to KiwiSaver themselves, they're not getting penalised by losing their
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  Speaker 3: employer contributions as well, so they're still getting something.
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  Speaker 2: What about the poor old employer? Don't they go through
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  Speaker 2: rough times as well? Rough patches too?
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  Speaker 3: Well, look, I guess at the end of the day, Kerry,
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  Speaker 3: someone's got to pay for these things and either we
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  Speaker 3: do something like this or we're going to get hit
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  Speaker 3: with increased taxes. I'm an employer too, right? So my employment,
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  Speaker 3: the cost of employing the lawyers in my firm, that's
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  Speaker 3: going to go up. But I'm kind of in the
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  Speaker 3: mindset that we have to do something and I think
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  Speaker 3: it's a good thing for people to be saving for
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  Speaker 3: their retirement, because if we do nothing, then we're all
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  Speaker 3: going to be taxed a lot more than we are
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  Speaker 3: now to try and pay for this in the future.
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  Speaker 2: Oh yeah, like it's a shambles and it should be raised.
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  Speaker 2: We should have the Australian version where it's raised right now,
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  Speaker 2: but if you've been working as a tradie, if you've
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  Speaker 2: been using your body, then you can get it earlier,
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  Speaker 2: but for less. Yes, yes, yes, agree. But surely the employer,
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  Speaker 2: and perhaps you can answer that, will just incorporate that
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  Speaker 2: into the wage they pay their staff?
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  Speaker 3: Well, there's two ways you can approach it. So at
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  Speaker 3: the moment, some employers do what's called a total remuneration agreement,
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  Speaker 3: and you get paid $ 80, 000, and that includes KiwiSaver, right?
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  Speaker 3: So that doesn't change as the KiwiSaver rates are ratcheted
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  Speaker 3: up over future years. Other employers, that's what we do,
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  Speaker 3: you have your salary and then you add KiwiSaver on
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  Speaker 3: top of it. It's interesting, the Labour Party, as part
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  Speaker 3: of their policy, wants to mandate that employment contracts have
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  Speaker 3: to exclude KiwiSaver and you can't adopt this total remuneration approach,
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  Speaker 3: as it's called, so that it's very clear what your
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  Speaker 3: salary is and then what the KiwiSaver is on top
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  Speaker 3: of that. And again, that's a little bit nanny status, right?
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  Speaker 3: Mandating everything, everyone doing everything in the same way. But
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  Speaker 3: I guess it's allowing people to be abundantly clear for
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  Speaker 3: people what their base salary is and what the KiwiSaver is.
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  Speaker 2: I've had a question here from Sarah saying, can you
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  Speaker 2: please ask if you have a small business in your
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  Speaker 2: work from home situation, like it's your head office, will
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  Speaker 2: you be susceptible to a capital gains even though it's
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  Speaker 2: your primary house? This could affect builders, electricians, et cetera,
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  Speaker 2: as they don't have offices as such.
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  Speaker 3: Yeah, I wouldn't. Look, they haven't released the detail, you know,
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  Speaker 3: any draft legislation, et cetera, but I would not have
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  Speaker 3: thought so, no. Okay. Because, you know, if you're probably
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  Speaker 3: only using 5%, 10% of your house space for your
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  Speaker 3: office and, rules around taxing those sort of mixed-use assets
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  Speaker 3: typically require something approaching 50% to be caught. So I
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  Speaker 3: would not expect that to be the case, no.
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  Speaker 2: And anything of note that came out of the webinar
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  Speaker 2: that you can share with us?
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  Speaker 3: Oh, look, it was explaining an enormous tax bill that
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  Speaker 3: got released late on Thursday. So there was 180 pages
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  Speaker 3: of new tax legislation and 280 pages of accompanying commentary
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  Speaker 3: explaining it. Look, there's some good stuff in there for
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  Speaker 3: small businesses, actually. So around FBT on motor vehicles, because
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  Speaker 3: the rules are really complex and require sort of logs
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  Speaker 3: of every day, whether you've used a car or not,
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  Speaker 3: and whether it's available for use. And people get it
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  Speaker 3: wrong because it's so complicated. So there's some significant compliance
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  Speaker 3: savings coming for FBT on motor vehicles. So I think
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  Speaker 3: that will be welcomed by small businesses because that's a
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  Speaker 3: real headache.
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  Speaker 2: It certainly will. Bruce, thank you. Always good to talk,
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  Speaker 2: but we have to go. Newstalk ZB, it is six
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