Forums / Property Investing / Overseas Deals / NZ Capital Gains Tax???

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  • Profile photo of BeginnerBeginner
    Participant
    @beginner
    Join Date: 2003
    Post Count: 7

    Hii..

    I just had a friend who works for an accounting firm tell me that the New Zealand Government is planning to introduce CGT on property investments.

    Has anyone else heard this and is it true?

    Appreciate the replys ;)

    Profile photo of muppetmuppet
    Member
    @muppet
    Join Date: 2003
    Post Count: 900

    Hi Beginner

    Not that I know of.

    Regards

    Profile photo of kiwiduvetkiwiduvet
    Member
    @kiwiduvet
    Join Date: 2004
    Post Count: 92

    They have considered this for some time but i think want to protect the level of inward investment (thus why the RBNZ has a 1 percentage point higher int base rate than Aus at the moment) which also has the effect of attracting forex investment. cullen (fin minister) is unpredictable though

    hey nah

    Profile photo of IbuycashflowIbuycashflow
    Member
    @ibuycashflow
    Join Date: 2004
    Post Count: 274

    There has often been talk of introducing capital gains tax on property in NZ. It’s a bit of a political football and often used to distract us from the real issues.

    At present CGT is not on the agenda but the Labour Govt is reviewing submissions on the officials’ issues paper “Repairs and maintenance to the tax depreciation rules”

    Cullen seems to think in the wake of escalating property prices, investors have had too much of a good deal and wants to bring our depreciation rates in line with Australia.

    My submission basically said “fine, as long as he brings the Residential Tenancies Act in line with Australia as well.

    Muriel Newman is on our side with this one. Go to http://www.depreciation.co.nz for submissions on the RTA

    Cheers
    Jeff

    Profile photo of BeginnerBeginner
    Participant
    @beginner
    Join Date: 2003
    Post Count: 7

    Hello..

    thank you all for the infor…well guess i will sit back and c wht happens..

    cheers

    Profile photo of Steve McKnightSteve McKnight
    Keymaster
    @stevemcknight
    Join Date: 2001
    Post Count: 1,749

    Hi,

    I think it is a political decision more than anything else. As I understand it the left has been talking about introducing it for some years now but as yet it has come to nothing.

    What do you think would happen if it was to introduce CGT though?

    Cheers,

    Steve McKnight

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    Profile photo of Julian2Julian2
    Member
    @julian2
    Join Date: 2003
    Post Count: 82

    If NZ was to introduce a capital gains tax they would probably do as Australia did (in 1975 I think) and make it applicable to all property purchased after the law was enacted. They would be unlikely to make it retrospective, and the logistics of getting every property valued at the time of introduction means this could not happen. So, the more property you own at the time of the introduction of such a law the better off you are likely to be – and a law like that would not be introduced overnight.
    The government is currently basking in a significant tax surplus so the pressure is not on for more revenue.
    That said, property traders and property developers are taxed on their capital gains, but under the guise of income tax. Should you do any developing or trading your subsequent investment properties become tainted, meaning you will have to pay tax on any gains on these investment properties as well – even if you operate seperate companies for your different activities.
    Tainting affects your spouse, partner, and some family members. So, as you can see, New Zealand does already have a defacto capital gains tax. It is not the tax haven that some people think it is.
    However there is no stamp duty, and no land tax, though we do have city and district rates of course. Our highest personal tax rate is 39c in the dollar, but this applies at the very low threshold of $60,000.
    Julian2

    Profile photo of QueenstownerQueenstowner
    Member
    @queenstowner
    Join Date: 2004
    Post Count: 27

    hi all
    I can’t see CG tax coming in at all,nz needs to attract as much investment capital as possible so a few bonuses are needed in a small market.However too many people think they can trade properties and get away taxfree.Even a lot of locals here don’t seem to understand it is your INTENT! that determines how you are viewed.
    I would be very worried about flipping alot of properties and not declaring the profit as the IRD are cracking down on trading.If your intent is to buy and hold for a number of yrs for rental income, this becomes the taxable activity.Your intent was rental income and when you decide to sell later on it’s CG taxfree.
    You do not as julian2 said want to be tainted as a trader or developer.I am a property developer involved in both land subdivison and spec home building as well as other small businesses.
    I disagree that all your properties become tainted as we have properties that we INTEND to keep for the forseeable future as rentals therefore incuring income tax but not CG tax when we sell.
    Regards Queenstowner

    Profile photo of Julian2Julian2
    Member
    @julian2
    Join Date: 2003
    Post Count: 82

    Hi Queenstowner,
    My understanding is that you will have to pay tax on capital gains of your investment properties if they were purchased subsequent to your developing/trading activities and if sold in less than a ten year time span from purchase. The exception could be if your investment properties are held in a trust – but then you don’t really own them as they are held for the benefit of the beneficiaries. If you are one of these beneficiaries and also settlor and trustee it could be deemed to be a sham trust and the IRD is not averse to unwinding these.
    An excellent book to pick up is, “A Practical Guide to Taxing Property Transactions” by Roger Thompson and Maurits van den Berg. Publishers: Staples Rodway. Cost: around $90.00 The writers have a legal/accounting/tax background. The writers cite a lot of case law to support their legal interpretations.

    They site an example (p.502) of a couple who are major shareholders in a development company but who don’t conduct development activities in their own name.
    Subsequently they purchase in their own names an investment property for long term rental. They sell this property after seven years. They are then obliged to pay tax on the capital gains associated with this rental property because their major shareholding in a trading/development company has tainted them personally. There are some exceptions and these, I believe, include the principle place of business ie business headquarters rather than the rental properties themselves, and the private residence (PPOR).
    Check this with your accountant. If you can find information to contradict this I would love to hear it.
    Julian2

    Profile photo of QueenstownerQueenstowner
    Member
    @queenstowner
    Join Date: 2004
    Post Count: 27

    Hi Julian2
    your right,it is a ten yr period but i would say there is a lot of grey area here and does depend on your structure.Also who in this country wouldn’t hold their investment properties in a trust?
    You can bet your boots alot of the aust investors buying in nz are doing so through a nz based trust to avoid aust CG tax down the track.
    Queenstowner.

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