New Zealand tax reform for residential investment property gains

The government in New Zealand is set to introduce a new law forcing property investors to pay taxes on capital gains if they sell-up within five years.

For many years, those who invest in real estate have not been required to pay any gains taxes for any properties sold after a two-year period from the point of sale, but in a bid to improve housing affordability for owner-occupiers.

The argument for this change comes from Revenue Minister Start Nash, who said publically that New Zealand needs investment which grows the economy and creates jobs, ‘not investment which distorts the residential housing market’.

"This proposal will ensure that residential property speculators pay income tax on their gains," says Revenue Minister Stuart Nash.  "Reducing speculative demand will also help improve housing affordability for owner-occupiers, bringing fairness back into the tax system.”

He adds: “Current exemptions from the bright line test will remain; this includes the exemption for the main home of owner-occupiers of residential property.”

This move comes just months after the government announced plans to ban foreign buyers from purchasing existing homes, given the acute shortage of housing for native citizens.  This ban will apply only to non-domiciles.

Low affordability has become a major issue in New Zealand over the last year, and a priority of the coalition between the Labor Party and nationalist New Zealand First. Prime Minister Jacinda Ardern has made it clear that she intends to stick with a promise to reduce migration, and restrictions on foreign ownership of houses.

This new action is likely to come into force later this year as part of an amendment to the Finance Bill.