Capital Gains Tax - mooted for NZ

Came across this review of the tax system in the land of the long white cloud.

Linky

@ellejay, @Stoffo

 

From the article, and not much different to AU
On the whole, we have a counterintuitive approach to taxation in New Zealand where we tax "hard work"
It's no wonder they are considering a capital gains tax
Two people in similar situations are taxed differently. A person who invests in a small business that produces goods and services pays tax on all their profits, while another who invests in property that accumulates passive gains, does not.

 

quote..
On the whole, we have a counterintuitive approach to taxation in New Zealand where we tax "hard work" and fail to tax gains that accrue passively. Two people in similar situations are taxed differently. A person who invests in a small business that produces goods and services pays tax on all their profits, while another who invests in property that accumulates passive gains, does not.

 

NZ has had a capital gains of sorts tax for a while on property. Its incorrect to say they dont have a CGT regime. Check the link below. Its describes many ways that tax is payable on a property sale or an indirect property interest. Generally unless its a long term hold (and sometimes a own occupant home) it may have some tax. eg 10 years. Under 5 years (or 2 years for some) there is a special bright line test as well. There are also "ordinary income"rules which are similar to those in Australia and based around intentions and also activities that are aimed at profit making.

They are looking at a broader based CGT regime as a consequence. One thing NZ has done which could be changed here is a regular pattern of buying and selling a home rule. Easy to implement and catch renovators who churn homes aiming for exempt sales.

(Residential property)

 

I don't know any property investors in NZ, myself included, who don't pay tax on profits. Whatever name they give it, it mounts up to the same thing. This year I sold a property in NZ and made a bit of profit but didn't pay any tax because of losses I could offset, but then I ended up paying a very small amount of tax in Aus as an Aus tax resident.

 

I have a number of clients with NZ property. LONG term holds (5 years +) often pay no tax where their intention was to earn rental income or a former home is rented and later sold.

The IRD four tests need to be applied in each case

The tax you pay depends on four things

1. Your intent when you purchased.
2. Your history of buying and selling.
3. Whether you're in or associated with the property industry.
4. Whether you buy and sell a property within five years (two years if the property was purchased on or after 1 October 2015 through to 28 March 2018 inclusive).

You decide to sell your rental property or portfolio
There may be a number of reasons you decide to sell a rental property sooner than you thought. Or you may decide it's time to sell your entire portfolio of rental properties. In both cases it doesn't mean you'll have to pay tax on any profit from the sales. It comes back to your original intentions when you bought the properties, if you have a regular pattern of buying and selling or you bought and sold within two years.

 

Because Oz & NZ have double tax agreements, would that mean those clients won't be liable for Aussie tax or they would still be charged CGT on the sale with a 50% discount applied?

 

NZ has first rights to tax real property under its tax laws. Australia taxes the gain on that same property as a discounted gain (based on the currency conversion too) and allows a tax credit for 50% of the NZ source tax (if any).

Hence full and final tax generally applies in Australia. But issues can influence this.