As a property investor, learn if a capital gains tax is likely and how it may impact upon your property portfolio. Read this to find out!
One of the policies the Labour Party campaigned on was the implementation of a capital gains tax. Yet before they were elected, they announced that all changes to tax policies from its tax working group will be put on hold until 2020.
A capital gains tax is appealing to the Government because of the income it could receive. From 2008 to 2017, there was a $320 billion rise in the value of New Zealand’s land and housing stock. This is a huge amount that the tax man is missing out on.
As a property investor, you most likely have some concerns regarding the implementation of a capital gains tax. Let’s discuss what it really means to investors if one is implemented.
Will a Capital Gains Tax Ever Happen?
On the Labour Party website, they announced that a Tax Working Group is to be established and mandated by December 2017. It will be the responsibility of this group to “focus on measures that will address the imbalance in taxation on gains from speculation in property and income from other sources.” (Labour Party Website).
We can take this to mean that if Labour are re-elected as the Government, a capital gains tax is highly likely. However, taxes on the family home or land under the family home will not apply.
How Will a Capital Gains Tax Affect Property Investors?
Capital gains is the profit you make between the time you buy and the time you sell a property. If you purchased a rental property for $500,000 and sold it three years later for $650,000, your capital gains would be $150,000. Currently there is a bright-line test, which means any profit made from buying and selling a residential property with the first two years is taxable There are some exclusions though. The Labour Government has since said that they will be raising the time from two to five years in the future.
A future capital gains tax may impact property investors by:
- Requiring them to pay tax on the profit they make when they sell a property
- Forcing landlords to raise rents to cover their tax bills
- Making being a landlord less appealing, reducing the number of rental properties available
- Reducing the number of rental properties being sold, lowering the number of first homes available for purchase
It’s not all doom and gloom on the property front though. Your life as an Auckland landlord can be made simpler by having us manage your properties for you. Give us a call now on 09 948 3255 for a chat, or book your free rental appraisal and leave your property management to us.
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