One of the attractions of buying property in New Zealand as a foreign investor is the lack of capital gains tax on property there – but now all that is set to change with an announcement that the tax system is being reviewed and this unpopular tax could be introduced soon…
New Zealand is one of the last remaining developed countries to not have a capital gains tax and the country is still grappling with the idea.
The final decision will be announced next week following a complete review of the country’s tax system.
The Government and Inland Revenue considered ways of widening the tax-base – ie. taxing things that aren’t being taxed already. Capital gains, land and a property tax on developed land are some of the options being considered
The opposition Labour party offered their support should the Government decide to introduce the tax.
Such a tax could be collected by the Inland Revenue Department either annually, based on changes to the value of your house, a big one-off chunk once you sell it, or anything in between. The tax could be around 20 per cent.
Currently, New Zealand property prices are picking up after months of falls as a result of the global economic crisis. They are starting to look healthier, with buyer confidence returning and demand increasing.
As there is a shortage of homes on the market, prices are staring to rise to as people hanker after the best homes.
But, industry experts are warning that the introduction of the capital gains tax could put off prospective buyers to such an extent that the market recovery could be hindered.
Those considering buying a property in New Zealand, renovating it and selling it on shortly afterwards for a profit will be put off buying atall, as this new tax could eat into their profit margins to such an extent that it may not be worth their while.
But, Finance Minister Bill English has expressed concern about a premature housing boom being damaging to the economy and says that the introduction of this tax could help to stop that.
However, Prime Minister John Key said it was questionable whether such a tax served its purpose.
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