Federated Farmers said a proposed capital gains tax was a "mangy dog", that would add unacceptably high costs and complexity to the rural sector.

"There is nothing in the Tax Working Group's final report that persuades us otherwise," Federated farmers vice-president and Commerce spokesperson Andrew Hoggard said in a statement.

The Tax Working Group has recommended the Government implement a capital gains tax - and use the money gained to lower the personal tax rate and to target polluters.

The suggested capital gains tax (CGT) would cover assets such as land, shares, investment properties, business assets and intellectual property.

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"A CGT would make our well-regarded tax system more complex, it will impose hefty costs, both in compliance for taxpayers and in administration for Inland Revenue, and it will do little or nothing to ease the housing crisis," Hoggard said.

Federated Farmers vice president Andrew Hoggard. Photo/Supplied.
Federated Farmers vice president Andrew Hoggard. Photo/Supplied.

"It is notable that even the members of the working group could not agree on the best way forward, with three deciding a tax on capital gains should only apply to the sale of residential rental properties and the other eight recommending it should be broadened to also include land and buildings, assets, intangible property and shares," he said.

"Federated Farmers believes that the majority on the tax working group have badly under-estimated the complexity and compliance costs of what they're proposing, and over-estimated the returns," he said.

The recommended 'valuation day' approach to establishing the value of assets, even with a five-year window, would be a feeding frenzy for valuers and tax advisors, "and just the start of the compliance headaches for farmers and other operators of small businesses".

Peter Newbold, general manager of PGG Wrightson Real Estate, said a capital gains tax would have a minimal impact at the moment because the rural property market was largely static.

He said in general rural property values for most sectors are holding steady, although there was some downward pressure in dairy in some regions.

"If that remains the case, a capital gains tax would have minimal impact on the market," he said.

"Land use change is occurring, and has been a constant throughout the history of New Zealand primary production," he said.

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"Overall, we believe that the introduction of a capital gains tax will have an impact on the rural property market, mainly due to farmers taking time to understand its implications," he said.

Newbold said the possibility of CGT was one more factor that farmers will need to take into account in their decision making around their businesses.