Budget 2015: Taxing property gains fairly

The Budget will include extra measures to ensure that people buying and selling residential property for profit – including overseas buyers – pay their fair share of tax, Prime Minister John Key says.

“People calling for a new capital gains tax often overlook the fact that under existing rules, anyone buying property with the intention of selling for a gain is liable for tax on that gain,” Mr Key told the National Party’s Lower North Island regional conference in Lower Hutt today.

“Everyone – whether from New Zealand or overseas – should pay their fair share of tax according to the law. So we need to ensure the existing law is enforced.”

Mr Key confirmed the Budget this week will contain several measures to bolster tax rules on property transactions and to help Inland Revenue enforce them.

They include:

• Providing Inland Revenue with extra funding for compliance and enforcement.
• Requiring non-residents and New Zealanders buying and selling any property other than their main home to provide a New Zealand IRD number.
• Requiring non-residents to have a New Zealand bank account to get a New Zealand IRD number.
• Introducing a new “bright line” test to tax gains from residential property sold within two years of purchase, unless it’s the seller’s main home, inherited or transferred in a relationship property settlement.

The changes will be subject to consultation and take effect on 1 October this year. The “bright line” test will apply to properties bought on or after that date.

“These measures will not affect New Zealanders’ main home, although existing tax rules will still apply in addition to these new steps,” Mr Key says.

“They are aimed squarely at ensuring that property buyers – including overseas speculators - who buy residential property with the intention of selling for a gain pay their fair share of tax as required by the law.

“It’s not unreasonable to expect that if you buy an investment property and sell it for a gain within two years, then you should be taxed on that gain.

“This is quite different to an investor buying with a long-term view of renting their property to tenants. And it’s completely different to New Zealand owner-occupiers who have worked hard to buy their family home.”

Mr Key says that while the current law is clear about taxing property gains, decisions often rely on the intent of the buyers or an assessment of their intentions by Inland Revenue.

“One of the reasons this has become an issue, particularly with overseas investors, is that we don’t always have good information about them. And some overseas investors can be difficult to track down – even if Inland Revenue knows they owe tax.”

Mr Key says New Zealanders would expect Inland Revenue to apply the same tax rules on overseas property investors that are applied to New Zealand property buyers.

“That’s what these changes are about. As New Zealanders, we expect each other to pay our fair share of tax.

“That same requirement must also apply to overseas residents. The Government welcomes overseas investment, but in return those investors must follow our rules when it comes to tax,” Mr Key says.

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