The New Zealand government has announced its plans to impose a capital gains tax on residential property sold by investors, including foreigners.

New Zealand Prime Minister John Key announced the plan on Sunday as part of the country’s Budget package. The new tax ruling states that profit gained from the sale of residential property within 2 years of purchase would be taxed up to 33%. Exemptions will be given if the property is a primary residence, inherited from deceased estate or transferred as part of a property settlement.

The new ruling is not a Capital Gains Tax, but more of a ‘tightening’ of current rules, as anybody who intended to profit from selling property would still be taxed after 2 or even 10 years. It is also to ensure that property buyers, including foreign investors, pay their fair share of tax as required by the law.

Citizens and non-residents alike who are involved in property transactions would be required to register with the Internal Revenue Department, and it would be compulsory for non-residents to set up a local bank account.

The new rules will take effect on October 1, at the same time the Reserve Bank of New Zealand will increase the minimum deposit amount to 30%, which is required from Auckland property investors to qualify for mortgage.

Auckland, New Zealand skyline

Auckland, New Zealand skyline (Source: Pixabay)

Nevertheless, few expect the tax to have much impact on Auckland property prices, which tripled in over a decade due to housing shortages caused by immigration, hitting a record high in April.

Labour leader Andrew Little said that there should be a full review before the tax is implemented. He pointed out that the current issue is Auckland buyers being shut out due to high market prices, speculators buying properties and foreign investors not needing to borrow buying into the market. Investors could simply hold on to their properties for two years before selling, thus contributing to the supply problem.

Reuters (link)
New Zealand Herald (link)
Property Observer AU (link)