The Tax Working Group’s recommendation for a capital gains tax (CGT) will mean property investors will want to sit down with their advisers and think about their portfolios, and consider the question of when – or if – to sell their property.
The introduction of CGT in New Zealand would place it into the company of the rest of the OECD, and the majority of the rest of the world. But according to mortgage adviser Brett Wood of Loan Market, larger investors are not likely to feel a significant impact, and the impact of a CGT on house prices is difficult to predict given current market conditions.
“The bigger property investors likely won’t be affected much at all,” Wood told NZ Adviser. “If there is an impact, it’ll be the smaller ‘mum and dad’ investors that it might deter.”
“Having said that, we’ve already got capital gains tax for investors at the moment in the form of the five year bright-line test,” he continued. “So it’s not as though this is something completely new. There are also many other factors occurring at the moment which will impact the market at the same time; there could be a slight spike in sales before the tax is implemented, but that likely won’t be very big.”
When it comes to house prices and affordability, Wood says the outcome of the Royal Commission and banks tightening their lending criteria will likely be the biggest factor to watch. He also says its intention of easing the burden on lower-income households may be hindered by a relatively flat property market.
“Our clients have been asking about what it might mean for them, but at this stage it’s only a proposition and it’s such a political football that it could go either way,” he stated. “My personal view is that capital gains tax will come in on property, but likely not on the sale of business, shares or KiwiSaver.”
“I don’t see any major benefit to CGT, and I don’t necessarily think that it’s needed here. They’re talking about making it revenue neutral, which means that any take from CGT will get put into tax cuts in the lower tax bracket – but we’re also heading into a period where we’re not seeing major property price growth, and anyone who’s selling over the next few years might not have much CGT to pay. So if they’re looking to make the lower tax brackets easier for people, it may actually not benefit them all that much.”
Woods encourages any investors concerned about the impact of a potential CGT to speak to their adviser and accountant.