Media in election year are filled with misleading material pushed by the opposition parties and the political debate about the Capital Gains Tax. You as reader know, the discussions about the proposed Capital Gains Tax are not new but amazingly the quality of information hasn’t improved. In one point I think people agree that income should be taxed equally. So – let me start with the question is Capital Gain on properties income or not?

By definition “income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings received”. Capital Gain is not an earning received, it is an inflation driven value, and the total figure is called by my insurer “replacement value”.

I still have records about my settlement in Wellington when I paid for one liter petrol 69c. Today I paid approximately three times so much for the same amount of fuel. If I would purchase my house today, I also would have to pay three-times the amount as I did 15 years ago.  That price increase applies roughly to everything because these figures are driven by inflation.

On assets like gold coins, old-classic cars, and also properties the difference between the previous purchase price years ago and the actual selling price is by definition capital gain. Now everybody knows restoring an old-classic car or maintaining a property comes with huge expenses over the years, right?

For instance I paid for renovation on my house in average 5k and 3k for rates, insurance, repair every year. With these figures over the last 15 years I spent more than 120 thousand Dollars to keep up with the “replacement value”. Costs for improvements like central heating, double glazing, solar heating, etc summed up to additional unbelievable 86 thousand Dollars.

When I cumulate expenses for maintenance, renovation and repair that figure is much higher as the difference between the selling price today and the purchase price 15 years ago. The Capital Gain is for me something like a reimbursement for maintaining the replacement value, actually expenses I have been carrying forward for over 15 years out of my pocket. Where is the income promised by bright headed people to be taxed?

Now, you could argue, I have over-capitalized and the figures for an investment property would differ. Right - I've got a strong opinion on that, too. Here in this article I refer to value and Capital Gain - not more. All I'm saying is, when somebody invests money to restore an old car or spends money to maintain the value of an investment property, I can't see any income received on sale. And secondly why should the Capital Gain for a house or a car be treated and taxed differently?

The next article part looks at the investment property specific and fairness.

Any contribution to that confusion is much appreciated.

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