Anybody who has bought a property since 2015 will know that New Zealand already has a form of Capital Gains Tax (CGT) on property.
Introduced at the height of the housing crisis, John Key's National government introduced its “bright line” test which requires anybody selling a residential home within two years of purchase to pay pay income tax on their gains.
That hasn't been enough for the current Labour government, which has announced the results of its CGT working group and plans to implement “capital gains tax to apply after the sale of residential property, businesses, shares, all land and buildings except the family home, and intangibles such as intellectual property and goodwill” from April 2021, according to The New Zealand Herald.
By now you've probably read what this will mean for you. It won't apply to the family home and houses on farms and surrounding land up to 4500 sq meters are exempt. Losses on the sale of assets bought before April 2021 should be able to be used to reduce CGT paid on gains from other assets, and the tax won't be applied retrospectively for any houses sold between now and April 2021.
The good news stops there. You'll be taxed at the highest tax rate on top of your normal salary; 33 per cent for most people. It remains unclear how this would be shared when two (or more) people own one house, e.g. a married couple where one spouse earns significantly more than the other.
National party leader Simon Bridges calls this CGT an attack on Kiwi values. "This would hit every New Zealander with a KiwiSaver, shares, investment property, a small business, a lifestyle block, a bach or even an empty section,” he said.
Why is this so problematic for your average middle class New Zealander? It's going to further prevent average earners from preparing themselves for a comfortable future as they age.
When you're an average earner who has bought one or two properties as an investment, you probably did so with the hope that they would be able to help set up your retirement. You have already been taxed on the salary you earn to buy each house. But, what you spend your taxed take-home pay on becomes an asset, and therefore it gets taxed again. It's a double-dip.
Now, if you're a property investor as a business, that's another story. It's already the current legal standard to tax your profits – it's your income, probably your primary source.
However if buying another property is something you've done on the side of your regular 9-5 job, you'll be punished all the more with a 33 per cent tax rate – whereas a company set up for property investment will be taxed at the flat rate of 28 per cent. When you're talking hundreds of thousands of dollars, that five per cent means a lot to the middle class.
This is yet another example of how Labour governments fail average Kiwi earners – those who still sit in the $40,000-$80,000 range, haven't had tax brackets moved for inflation in 12 years, and are struggling with the forever-increasing cost of living in New Zealand.