pn578. Susan St John answers Jo Hill's query on tax reform: not draconian but fair and effective

See Susan' original article pn566, and Joe Hill's query pn574.

Hi,  sorry this has taken so long

The net equity is aggregated and $1 million exemption applied for an owner occupied amount.  It is likely that only 10-15% of property owners will be affected.  It will get at multiple dwellings- over-expensive owner occupied homes and speculators. Only NZ registered Mortgages allowed to determine net worth of family home.  

 

The modest home now worth over $1million  would have a 2 million exemption if  it is a couple. Suppose that I have a house worth $2 million and a $500m mortgage – my net equity is 1.5 million. After exemption for family home, my net equity of $500,000 in the bank at 2% would generate a return of $10,000.  At my marginal tax rate of say 17.5% that would be under $2,000.

 

If I have $20m of net equity in multiple houses the $19m at 2% -is 380,000  or $66,500 at mrt 17.50—seems fair enough. I would not have to put in a return for the rental properties. I have less incentive to hold empty houses for CG  

Hope this clarifies—it is not draconian but effective.

Susan