Capital gains tax in doubt, says accounting expert

A capital gains tax would hit investment property profits and is unpopular with landlords. Photo / Doug Sherring

The Government's tax working group is likely to park the controversial capital gains tax, an accounting expert predicts.

An interim report into New Zealand's tax system, overseen by former Finance Minister Sir Michael Cullen, is expected for release this month.

Final recommendations are then due in February and the most controversial thing that the group is expected to cover is a capital gains tax.

This would particularly dampen the profits to be had from property investment and is unpopular with landlords.

Former Deputy Prime Minister and Minister of Finance Sir Michael Cullen is chair of the Tax Working Group / Doug Sherring

But Paul Drum, head of policy for accounting group CPA Australia, believes the matter will be parked.

"A close reading of the tea leaves suggests the highly politicised and important issue of the capital gains tax (CGT) is probably to be parked for further consultation and input," he said in a Herald opinion piece.

"This is not to say a firm recommendation will not materialise upon publication of the final report – I think it will and is likely to be broad-based, with an exclusion for the family home – but it will require significant political consideration before being put to the public," Drum said.

Westpac chief economist Dominick Stephens said earlier this year that introducing a 10 per cent capital gains tax would reduce New Zealand house prices by 10.9 per cent and lead to a higher rate of home ownership.

Property prices in New Zealand are "profoundly affected" by the tax system, Stephens said. "It follows that changing the tax system would change property prices."

Executive officer of the NZ Property Investors Federation said in July that rental properties were fairly taxed under the existing rules.

Mark Lister, head of private wealth management at Craigs Investment Partners. Photo / John Borren

Craigs Investment Partners' Mark Lister said earlier this month that he was open-minded about a capital gains tax.

"I just worry the politicians will get it wrong," he said.

"We know it will exclude the family home, as is the case elsewhere. There will no doubt be other allowances that could also skew the landscape, allowing those with access to good accountants an opportunity to exploit such loopholes."

His biggest worry was that the policy would backfire "with other asset classes like shares and businesses getting hit harder than property".

"That would be a disaster, given the need to push capital and savings towards those productive, job-creating parts of the economy," he said.

"I'll also be interested to see what they have in mind regarding income taxes. For the introduction of a capital gains to truly be a rebalancing exercise, we should reduce the tax rate on income at the same time. That would shift the focus towards actual cash profits that reflect genuine growth, and drive investment decisions in the right direction. I doubt that will happen though, and we would simply see yet another tax on top of what wage earners and income-conscious investors are always paying."