My Account
The proposal to introduce a capital gains tax has so far proved the most widely debated of the Government’s Tax Working Group’s 99 recommendations.
The group suggested that the new tax could be imposed on investment properties, shares, business assets and farms.
This could bring in $8 billion over the first five years and the group recommends that the money be used to reduce income tax for middle and low income earners.
Government is not required to accept all the recommendations and is expected to make further announcements this month. In any case, no taxation changes arising from the report will come into force until after the next election.
Hibiscus Matters put two questions to Rodney MP Mark Mitchell and Marja Lubeck, Labour list MP of Rodney
Do you consider the proposed capital gains tax would be fair for New Zealanders, and why?
Mark Mitchell
How can it be fair that a multi-million dollar home in Remuera will be protected from a CGT, but a three-bedroom home on two acres would be included? National doesn’t think it’s fair that Kiwis who own small businesses could lose a third of their gains when they sell up to retire. The CGT proposed would be one of the most onerous in the world. It will discourage investment and saving by loading more taxes onto hard working Kiwis, innovators and entrepreneurs.
Marja Lubeck
Some people have made big gains buying and selling investment properties without paying any tax over that income, so I believe it is fair and really important – especially considering growing inequality – that our tax system is fit for purpose now, as well as for future generations. Extending capital income taxation will ensure that more tax is paid by wealthier households, with most lower and middle-income earners better off.
What makes capital gain from the sale of an investment property different from any other source of income – ie, why should it be exempt from tax?
Mark Mitchell
Fundamentally, assets are already taxed. Assets are only worth the value of their projected future income stream. In the case of rental properties, they are worth the future income they can create from rents. Therefore the income derived from a rental property is already taxed when it is earned. If you increase the level of tax on the income earned from a rental property then the value of that property would fall (ie, the capital gain). So adding a capital gains tax on top of the tax paid on income would effectively be double taxation.
Marja Lubeck
Almost every other OECD country taxes income from capital gains and I do not believe that the capital gain from the sale of an investment property is different from any other source of income. It doesn’t seem fair that a person who earned $50,000 in wages pays $8020 in tax on that income, while someone who makes a $50,000 capital gain from the sale of a rental property, pays no tax on that gain.
- Speculative investment in rental properties is taxed already. A bright-line test was brought in by the National Government in 2015, which means that any residential property – excluding the family home, businesses, farms or inherited assets – is subject to tax if sold within two years. The current Government increased that period to five years.
- Other Tax Working Group recommendations include removing tax on employer KiwiSaver contributions for lower income KiwiSavers, a tax-free threshold and allowing businesses to claim depreciation expenses on buildings.
- The report also focuses on the environment and recommends that increasing the rate and scope of the Waste Disposal Levy, strengthening the Emissions Trading Scheme and congestion charging should be immediate priorities.
Read the full report: www.taxworkinggroup.govt.nz
