Capital Gains Tax Update
The New Zealand Government created the Tax Working Group to consider the future of tax. Chaired by former Finance Minister Hon Sir Michael Cullen, it will provide recommendations to Government that would improve the fairness, balance and structure of the tax system over the next 10 years.
It sought input from a diverse and wide range of New Zealanders and ran a two-month public consultation between 1 March and 30 April 2018.
In September 2018, the Tax Working Group released an interim report. The report identified a list of asset classes that are not already subject to tax and that included houses excluding the family home, “Capital gains from these assets would be included in the tax base,” it said.
Labour coalition partner NZ First has yet to comment on whether it would support legislation enabling a capital gains tax. It is acknowledged by many experts that a capital gains tax would add huge complexity to our relatively simple tax system, though some economists believe it may improve housing affordability.
Final recommendations from the Group will be out on Thursday and industry groups, lobbyists, iwi authorities, financial experts and institutions are gearing up to react. We will bring you an update in our March blog.
To read the Tax Working Group reports visit their website – https://taxworkinggroup.govt.nz/
The latest NZ Herald article is copied below, or read online here https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12203299
Capital gains tax debate heating up: final recommendations out on Thursday
A capital gains tax would “add huge complexity to one of the world’s simplest tax systems” according to an Auckland-based investment expert, but a chief banking economist disagrees and backs its introduction.
Paul Glass, executive chairman of Devon Funds Management, said he was initially in favour of a CGT “but the more you look into it the less appealing it is” so he now opposes it.
But Dominick Stephens, Westpac chief economist, backs a CGT: “It would improve housing affordability, lead to a higher rate of home ownership, help remove the heavy skew we have towards land-based investments, and eventually lead to a more diverse national balance sheet. It would also improve incentives to engage in paid work if income tax was reduced.”
Final recommendations from the Tax Working Group will be out on Thursday and industry groups, lobbyists, iwi authorities, financial experts and institutions are gearing up to react.
The group, chaired by former finance minister Sir Michael Cullen, released an interim report last year which said it had “identified a list of asset classes that are not already subject to tax” and that included houses excluding the family home. “Capital gains from these assets would be included in the tax base,” it said.
Glass said that superficially, CGT sounds fairer, would aim to rebalance the economy away from assets and towards incomes and capture windfall profits when realised like land re-zoning.
“But it would add huge complexity to what is currently one of the world’s simplest tax systems, would result in a massive industry – as happens elsewhere in the world – advising on tax and minimisation structures, wouldn’t bring in much additional money, would fall heavily on the upper-middle because the very wealthy are very good at structuring their affairs and would be a real productivity burden with every business decision needing to be weighed up with a CGT lens,” Glass said.
The actual base for taxation would be small because the family home would most likely be exempt and that is about 42 per cent of New Zealanders’ assets, Glass said.
“We already have a progressive tax system whereby 40 per cent of households pay no net tax after transfers. The top 3 per cent pay 24 per cent of all tax received. The top 10 per cent of households pay 70 per cent of net tax,” Glass said.
Last week, EY global chairwoman of tax Kate Barton said New Zealand’s lack of a capital gains tax was “unusual” although in the United States, the system was quite complex.
Stephens says property is more lightly taxed than other forms of investment. Treasury and the Inland Revenue estimate that property investors pay 29.4 per cent of their after-inflation returns in tax, whereas bank depositors and owners of dividend-paying shares pay 55.7 per cent.
Andrew King, NZ Property Investors Federation executive officer, opposes CGT, claiming property is “taxed more heavily than other assets with a higher marginal effective tax rate because of local government rates.”
Kelvin Davidson, CoreLogic’s senior property economist, says all eyes are on this Thursday.
It seems all but certain that CGT, excluding the family home will be recommended, but there are plenty of uncertainties around the exact form of it, he says.
“Will it be a traditional CGT, when you pay a one-off lump sum when you sell, or will it be an annual charge on the assumed/theoretical income that your asset is generating?” he wonders.
Perhaps the biggest debate is around the tax rate – a person’s marginal income tax rate would seem to be a high rate to impose, he thinks.
“Whatever the details, the Government still has to accept the recommendations and then survive the next election, so none of this is a done deal. A CGT would certainly change the economics of property investment, dampening liquidity – after all, as an owner, you’re going to be less inclined to sell if you face a CGT liability. We already have a capital gains tax, via the brightline test,” Davidson said.
SNAPSHOT ON CGT
- Paul Glass, executive chairman of Devon Funds Management: “CGT would add huge complexity to one of the world’s simplest tax systems.”
- Dominick Stephens, Westpac chief economist: “CGT It would improve housing affordability, lead to a higher rate of home ownership, help remove the heavy skew we have towards land-based investments.”
- Andrew King, executive office, NZ Property Investors Federation: Opposes CGT because landlords already pay extra tax via council rates.
- Property Council: “CGT tends to be sub-optimal in terms of their coverage and ability to be a viable and stable revenue source. But there is a strong equity (fairness) rationale for the introduction of a CGT in New Zealand.”
- AMP Capital Investors: “Introduction of a broad-based CGT is the obvious missing component of our tax system.”
- EY: “If the Government has concerns regarding all forms of capital investment, [we recommend] considering a broad-based CGT. One of the key criteria by which we should assess our tax system is through equity and fairness. Our current tax system focuses heavily on taxing income. However, income is not the only or major source of affluence for many New Zealanders.”
- Federated Farmers: 81 per cent of 1393 survey respondents oppose CGT. Farmers would quit the industry, CGT would make work for accountants and lawyers and create issues with inter-generational family farming operations, respondents said.
- DairyNZ: “Introduction of a comprehensive CGT presents significant challenges, both in transition and practical implementation.”
- Craig Stobo, company director: “New Zealand already has a CGT. However, it is not comprehensive and there are concerns about how to consistently enforce it.”
- Waikato Tainui: “Any new asset/wealth taxes, including any CGT or land tax, must exclude all Waikato-Tainui whenua and other taonga and all raupatu and other Tiriti settlement assets including post-settlement right of first refusal assets acquired from the Crown.”
- Taxpayers’ Union: “Taxing capital should be approached with great caution in the specific New Zealand context. New Zealand’s economy suffers from shallow capital markets and allow productivity, contributing towards a low wage environment. A CGT would likely make that worse.”
Hopefully this summer you will be able to visit the beautiful city of Tauranga, and our stunning coastal communities at Mount Maunganui and Papamoa. While you are here, make sure you check out the local papers for some of the amazing job opportunities. Besides having a similar salary base to larger cities, Tauranga has lots of job variety, including senior management positions, and plenty of new business opportunities.
When you are here you will see that this fantastic region has much to offer its residents. An awesome climate which means you can grow nearly every fruit and vegetable available in New Zealand, a huge selection of homes from new townhouses to larger character homes, stunning beaches only a few minutes’ walk or drive away, shopping malls, a fantastic pool complex, a great arts and cultural scene and more.
So take the time to look around. If you’re serious about moving here, we can show you some of the fantastic houses we have available for rent. If you are retiring and/or looking to invest in an investment property, we can give you plenty of local property management advice about best areas to buy and the types of rental return you can expect for you house.
We are confident you will love our city, and we think you may decide to stay!
The official start of Summer is only a week away and once again Tauranga is ready for an eventful summer. October saw the arrival of the first cruise ship to the Bay, and these amazing floating towns will continue to grace our shores until the end of March. Of course this means more tourists out and about, but it is a great boost to the local economy with many retailers and tourism activities relying on the ship visitors. It’s also great for tourism as a whole for the Bay, with many people returning to explore our amazing region and some even coming back to live!
Events that are lined up this summer include both weekend and night markets, music festivals, carnivals, triathlons, surf events, Motorsports and more. If you head the the Bay of Plenty website you will see the range of events that covers nearly everyone in the family – https://www.bayofplentynz.com/events
Summer also means the fantastic beaches of Mount Maunganui and Papamoa will be full of swimmers and surfers. The sea will be busy with fishermen, yachts, jet skis and tour boats. The shops and bars will be humming and the atmosphere will be buzzing. This really is a fantastic place to work and live.
The downside? As we have spoken about in previous blogs, due to the popularity of this region, rental properties are still in short supply (this includes rental properties in Tauranga, Mount Maunganui and Papamoa). We have many fantastic tenants waiting for their ideal home, this includes houses, units and apartments both furnished and unfurnished.
So now is a great time to not only visit Tauranga, but also to invest in property. The returns on investment are excellent, and with our flat rate Property Management fee we can guarantee what your rental return will be each month. Furthermore, we have a strict selection process for screening tenants, we have regular comprehensive property inspections, and we use the latest property management software. So we can guarantee peace of mind as well as a good return.
If you are over here this summer, give Chris and her team a call. Our expertise includes over 20 years real estate knowledge for the Tauranga area. We are a privately owned and operated business and we pride ourselves on our fantastic and friendly service. We can walk you through the steps of what you need to do, including any legal requirements, discuss rental returns, and set you up with the perfect tenants as soon as you’re ready!
Chris Jenkins – 027 443 6152 or freephone 0800 333 221
This month saw new Government regulations proposed for two key issues that will have significant effects on the residential property rental sector. Submissions were called for on proposed changes to the Residential Tenancies Act and the Healthy Homes Guarantee Act.
The current Government says its proposed reform of tenancy laws aims to “make life better for renters” by:
- Improving tenants’ security and stability while protecting landlords’ interests
- Ensuring the law appropriately balances the rights and responsibilities of tenants and landlords and helps renters feel at home
- Modernising the legislation so it can respond to the changing trends in the rental market
- Improving the quality of boarding houses and the accountability of boarding house landlords.
Contentious proposals on which the Government is seeking feedback include:
- Ending no cause terminations while ensuring landlords are still able to end tenancies for justifiable reasons
- Increasing the amount of notice a landlord must generally give tenants to terminate a tenancy from 42 days to 90 days
- Whether changes to fixed-term agreements are justified to improve security of tenure
- Limiting rent increases to once a year
- Whether there should be limitations on the practice of ‘rent bidding’
- Whether further controls for boarding houses are needed to provide adequate protection for boarding house tenants
- Introducing new tools and processes into the compliance and enforcement system.
While some proposals are welcomed by landlords and property managers, some of the proposed changes, including increasing the termination notice period to 90 days would make problem tenancies significantly harder to deal with.
There has been a call from the New Zealand Property Investors Federation for stronger rules around rental payments to dissuade tenants from not paying.This could involve the ability to charge interest on outstanding rent, the ability to charge tenants’ credit cards or exemplary damages if they don’t pay their rent, and faster access to the Tenancy Tribunal for rent arrears cases.
Tony Alexander, Chief Economist at the Bank of New Zealand, predicts the regulations will make property owners more selective about who they allow into their properties, and rent rises when tenants change will likely increase while demand for state housing also rises. He said some investors would sell, worsening the housing shortage.
To find out more about the proposed changes visit the Ministry of Housing & Urban Development site –
Housing and Urban Development Minister Phil Twyford has issued a consultation paper on minimum standards proposed under the Healthy Homes Guarantee Act, which the Government says must be in place by July 1st next year.
The proposed standards will set minimum requirements for heating, insulation, ventilation, moisture and drainage, and draught stopping in residential rental properties. The public consultation paper examines issues and suggests options for each category.
The Minister said the proposed standards were “designed to eradicate the tens of thousands of health complaints resulting every winter from “damp, cold and mouldy” rental homes”. He also stated that the current Government is “committed to improving the quality of rental properties so that families living in rental properties are happier and healthier”.
The proposals come on the back of the Government’s Healthy Homes Guarantee Act passed in December. They will require all landlords to bring their rental properties up to the new health standards, except where those improvements are not practical.
Landlords who did not comply with the new standards could face a $4000 fine issued by the Tenancy Tribunal. It was unclear how many of the country’s rental properties would need to be modified, Twyford said.
PROPOSED RENTAL HOUSING STANDARDS
Option 1 – heaters able to maintain a temperature of at least 18 degC in applicable rooms
Option 2 – heaters able to maintain temperature of at least 20 degC
Option 1 – landlords required to provide fixed heating devices only
Option 2 – landlords required to provide fixed and portable heating devices
Option 1 – Heating provided in living room
Option 2 – Heating provided in bedrooms and living room
Minimum ceiling and underfloor insulation level:
Option 1 – no change from 1978 standard for existing insulation and 2008 Building Code standard for new installations
Option 2 – 2001 Building Code standard for existing insulation and 2008 Building Code standard for new installations
Option 3 – 2008 Building Code standard for existing and new insulation
Insulation degradation levels:
Option 1 – 30 per cent reduction classed as unreasonable
Option 2 – 10 per cent reduction classed as unreasonable
Appropriate ventilation method:
Option 1 – No change: At least one window in all bathrooms, sufficiently-sized windows in other habitable rooms and adequate ventilation in non-habitable rooms
Option 2 – Openable windows in living room, dining room, kitchen, and bedrooms – unless exemption applies and bathrooms have extractor fan
Option 3 – Same as option two, plus extractor fan in rooms with indoor cooktop
MOISTURE AND DRAINAGE
Option 1 – No change: efficient drainage for removal of stormwater, surface water and ground water; gutters and drains to remove roof water; adequate ventilation to prevent floor dampness
Option 2 – addition of subfloor ground moisture barrier (81 per cent of rental homes do not have these)
Option 1 – No change: Walls and ceilings sheathed, plastered, rendered and maintained; no crevices, holes or depressions in floor
Option 2 – Unused fireplaces and chimneys and gaps or holes bigger than three millimetres to be blocked
The discussion document and an online survey are available at www.mbie.govt.nz/healthy-homes Consultation is open for seven weeks with submissions closing at 6pm on Monday 22 October.
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