Will capital gains tax apply to the family home?

The NZ Property Investors' Federation (NZPIF) says that if capital gains tax was to apply to to the family home in New Zealand, the organisation wouldn't have a problem with the tax.

It's a strange omission from a property investors' group that has been vocal in its calls against capital gains taxes on property because of what it will do to the rental market.

As reported by Newshub, “If the CGT was applied to everything—businesses, farms, assets, even the family home... the NZPIF 'wouldn't have a problem' with it.”

Now, suggesting CGT applies to the family home is considered political suicide in New Zealand. The Labour-led Government has been very careful to tell Kiwis that their primary home won't be affected by new taxes in order to garner their support for CGT.

Yet NZPIF says an across-the-board tax is the only “fair” way around capital gains on property. The organisation's executive officer Andrew King says, “I don't think we'd have an argument with it because it would be fair, it would be across everybody”.

Is there any merit in this argument?

As it stands, the CGT working group's recommendations contain lots of loopholes for people not to pay tax on their capital gains. For example, farms smaller than 4500m2 (around the size of a property with 100 sheep) are exempt, yet it's unclear why any capital gains on this would be different to the gains made on an investment property or bach. Strangely, it has been proposed that all Maori are except from paying capital gains tax, full stop (the Prime Minister refused to answer whether or not her government would apply such a loop-hole when asked during Question Time last week).

In such cases, perhaps NZPIF has a point. If a capital gains tax applies to some but not all, it's not fair. But this argument assumes that the taxation system is fair, which it's not. Small businesses are punished more than big businesses with taxes, for example. In another inconsistency, overseas companies that send products to New Zealand are subject to GST, even though they use no government-provided New Zealand resources in their business, yet New Zealanders doing business aboard can zero-rate their products/services and pay no GST.

As any accountant will tell you, the taxation system in New Zealand is supposed to be one of the most straightforward in the world. Yet anomalies and contradictories are in there, and any tax on capital gains will only add more difficulties for Kiwis to navigate.