Following the release of the Tax Working Group’s sweeping recommendations earlier this year, many investors feared a capital gains tax in some form was a given.
That meant the Prime Minister’s announcement on Wednesday that none of the TWG’s capital gains recommendations will be adopted came as a huge surprise to most.
Property commentator Ashley Church says the decision is a victory for common sense over ideology.
“It puts an end to any attempt to introduce a capital gains tax – which has been a staple of Labour policy since 2011 – for the foreseeable future.”
He says the idea that it was about reform of the tax system lost any validity the moment it was decided to exempt the family home from consideration for no reason other than political expediency.
“From that point onward, it was simply an envy tax and had it proceeded it would have had devastating implications on the rental sector including a reduction in the number of rental properties available and a commensurate increase in the cost of renting.”
Church says that while the Government’s decision was likely prompted by a lack of support for the proposal on the part of New Zealand First, it should be applauded.
“But the end of this particular idea will provide some relief for a sector which has been demonised and unfairly characterised by those who should know better.”
NZ Property Investors Federation executive officer Andrew King describes the Government’s decision as the right decision to make.
“Good on them for realising that a capital gains tax was not wanted by most people, was unlikely to do what they wanted it to do and for making the announcement they have today.”
But he does note the Government is planning to target speculation and land banking and says he is concerned that there will continue to be a confusion of rental property owners with speculators.
“We hope the Government realises that they need private landlords, who provide about 85% of rental properties, and that hurting landlords will also hurt tenants at a time we have a rental crisis.”
Veteran landlord Peter Lewis, who is vice-president of the Auckland Property Investors Association, agrees, but says there’s now likely to be a further tightening of tax rules for rental property owners.
“I suspect that alongside new rules around the ringfencing of rental losses, we will see an extension of the bright line test from five years to 10 years.
“That will mollify the hardcore group which wants to punish residential landlords. But rather than impacting on established investors, it will actually penalise newer or less established investors.”
Such tax rules are also likely to have a detrimental effect on the rental market, he says.
But for the property industry overall, the Government’s decision on capital gains will bring a greater level of certainty to the market going forward.
REINZ chief executive Bindi Norwell says that as an industry they had grave concerns that a capital gains tax could push up house prices even further as seen in other OECD countries.
Buyers and sellers had been unanimous in their uncertainty, so REINZ welcomes the Government’s announcement, she says.
“Those who own lifestyle blocks will no doubt be particularly pleased, as they were one of the few communities facing a capital gains tax on the sale of their own home on land over 4,500 square metres.”
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