The Block NZ signifies everything that’s wrong with our tax system. Takapuna tax expert Terry Baucher fills Rebecca Stevenson in on how we can get a lump of cash, and keep it all to ourselves.
This post was first published on September 19, 2017.
After we all recovered from the horror that was The Block NZ finale, it’s a good time to learn why this supposedly inconsequential show is actually a perfect example of why our tax system is stupid.
We turned to Takapuna tax expert Terry Baucher, who previously blogged on The Block’s tax situation in 2012. In a remarkable coincidence, Baucher says he was called by an accountant asking for his advice around a huge lump of money won on a TV show last year, just after The Block NZ’s 2016 finale.
Now, Baucher doesn’t know the ins and outs of this year’s contracts, but he has a hunch or two. In his previous column Baucher guessed Block winners could be on the hook for their winnings as it related to work in the form of the use of their images.
But Baucher now thinks this is probably not an issue. As he understands it — without reading the specific contracts — the show’s contestants are paid a stipend throughout filming. This payment is likely linked to the use of their images and associated promotions with sponsors.
And an email response from Mediaworks confirms the show’s stars are paid a per diem, but not a wage during filming.
Baucher thinks it’s likely a company linked to the production pays the tax obligation on any profits, as the true owner and developer of the homes. Now the company may be offsetting the profits against other losses and not paying tax on profits at all, but that’s more complicated and hard to discern, he says.
Mediaworks referred all questions about the legal setup and profit of the properties to Warner Bros.
But what of those hardscrabble auction profits? A huge $1000 bucks for Ling and Zing, $13,000 for Julia and Allie and up to $130,000 for the oh-so-nice Dads, is, yes, a tax-free windfall as it’s been classed as prize money, Mediaworks confirmed.
So just like the proceeds of gambling, or picking up the first division and Powerball in Lotto, the tax man can’t touch this.
Baucher says the production company could have arranged it so that through a partnership or trust the funds were able to be distributed as a gift to the Blockheads, but there would have been no contractual arrangement to pay — because that would trigger the interest of IRD.
And just like that, they get the cash all to themselves.
Because, in case you’ve missed it, we have no capital gains tax in New Zealand. “No gift duty, no death duty, we have no capital gains tax on transfers of wealth,” Baucher says.
The Block NZ is a great little example of the CGT loophole, and is symbolic of the modern New Zealand economy, he says. “A company would pay tax, but individuals won’t.”
Baucher says our current tax system is not fair, and he even co-wrote a book on it. He takes aim squarely at the lack of a capital gains tax.
“It undermines the overall fairness of the tax system by creating a tax-preferred class of assets. Furthermore, it is a key factor in the current housing crisis, creating inter-generational tensions between older baby boomer property-owners and younger millennials struggling to get a foothold on the property ladder,” Baucher wrote earlier this year.
Got it? The path to unfettered wealth in this country is to find someone, today, to gift you hundreds of thousands of tax free dollars. Or pull yourself up by your bootstraps, buy a house, and then sell it for a lot.
Now that you’ve got yours, what about the poor old government? Don’t worry about it, Baucher says. It got a guaranteed cut through GST on the sale.
So the only remaining question is: in light of the measly profits, is The Block NZ breaking the minimum wage law?
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