How will the CGT (capital gains tax) affect the property market?


It could lead to small upward pressure on rents and downward pressure on house prices. 'In the short-term there may be some initial relief in house price affordability as investors look to sell their property to avoid paying CGT. However, in the long term it’s likely to push house prices up as people look to invest more money in the family home, as there will be less incentive to invest in rental properties or other forms of investment e.g. equities' - Bindi Norwell, Chief Executive at REINZ

The key report details of the proposed CGT

  • Capital gains tax to apply after the sale of residential property, businesses, shares, all land and buildings except the family home, and intangibles such as intellectual property and goodwill.

  • Tax rate to be set at the income-earner's top tax rate, likely to be 33% for most.

  • Calculation of gains not to be retrospective - tax to be applied to gains made after April 2021.

  • Art, boats, cars, bikes, jewellery, personal household items and the family home to be exempt.

  • Losses on the sale of assets bought before April 2021 will generally be able to be used to reduce paid on gains from other assets.

  • Increase the threshold of the lowest tax rate (10.5%), allowing more income to be taxed at the lower rate.

  • Increase social welfare net benefits to allow similar benefits as low-income earners post tax threshold adjustments.

  • House on farms and surrounding land up to 4500 sq metres exempt from CGT, calculated as a percentage of total farm value.

  • CGT on small businesses can be deferred (roll over relief) if annual turnover is less than $5 million and sale proceeds are reinvested in similar asset class.

  • No support to make company tax progressive, i.e. smaller companies paying less than 28%

  • Capital gains tax estimated to raise $8.3 billion over five years.

  • Expand coverage and rate of Waste Disposal Levy, expand the ETS and use congestion charging.

  • Better tax benefits for KiwiSavers on low and middle incomes.

* Data sourced from the First National Bank of South Africa Repeat Sales House Price Index, REINZ and oneroof