Everybody is asking if New Zealand is going to have a capital gains tax. The answer for now is … probably.
The Labour Government set up a Tax Working Group (TWG) to provide advice on a number of tax issues including whether a capital gains tax should be introduced.
Note that New Zealand already taxes gains on the sale of assets for example that were acquired with the intention of resale and where an investment property is bought and then sold within 5 years (the bright line test).
The TWG has released an interim report with the key points being:
- The TWG appeared to make comments supportive of a capital gains tax without yet making a recommendation for the tax, since this was only an interim report. For example: “Taxing capital income that is currently untaxed is likely to provide a significant and growing revenue base for the future” and “[Tax] Reform could therefore reduce inconsistency in the treatment of individuals, increase the progressivity of the tax system and enhance or maintain social capital”.
- If there was a capital gains tax introduced, then it would cover:
- Interests in land (other than the family home). For example, all other residential property, commercial, agricultural, industrial and leasehold interests not currently taxed;
- Intangible property including goodwill;
- All other assets held by a business not already taxed on sale;
- Shares in companies.
- The capital gains tax would not cover:
- The family home and land under it;
- Certain personal assets such as cars, boats, jewellery, fine art and other collectables.
- The capital gains tax would apply at ordinary income tax rates.
- The capital gains tax could apply either on:
- A realised basis so when assets are actually sold and people receive a capital gain; or
- An accruals basis so people are taxed on the gain in an asset’s value during each year. This would raise issues of valuing assets and that people may be required to pay tax even though they have not received a capital gain.
- If a capital gains tax was introduced, it could apply either:
- To all assets with effect from a certain day (used in South Africa); or
- Only for assets acquired after a certain day (used in Australia). At this stage, the TWG favours this approach.
A final report is expected in February 2019. The Government has said it would not act on the final report recommendations until after the next election in 2020. This means even if the Government decides to go ahead and introduce a capital gains tax it will not be until 2020. Accordingly, for now it is a case of wait and see.
Remember though that Labour did campaign in favour of a capital gains tax at the last election and the TWG appear to be leaning towards recommending a capital gains tax so it does seem likely that Labour will seek to introduce a capital gains tax at some point.
