Luxon bought the apartment when investment transactions were subject to a five-year bright-line test. The bright-line test is a kind of capital gains tax that taxes the gain someone makes on a property, excluding the family home, at the owner’s marginal tax rate if it is sold within a certain time period.
The test was brought in by the Key Government in 2015 and set at two years. In 2018, Labour extended the test to five years and in 2021 it extended it to 10 years. Main homes, defined by the Inland Revenue Department as the home to which you have the “greatest connection”, are excluded from the bright-line test –but Luxon’s main home is in Auckland, meaning the apartment would have been caught by the tax.
Because Luxon bought and sold the apartment within five years of purchase and he bought the apartment after the introduction of the five-year test, he would have been required to pay tax under that test at a rate of 39% – equating to a maximum tax of $70,200.
However, on coming into office, Luxon’s Government scrapped both of Labour’s extensions of the bright-line test, shifting it back to two years as of July 1, 2024. That means Luxon avoided being caught by the five-year test by just over two months and saved himself up to $70,200. If he had sold the apartment in February, when he declared he would move into Premier House, he would likely have been required to pay the tax.
The Herald understands significant improvements were made on the apartment, which likely contributed to its rise in value. Some of these may have been deductible, reducing the liability, although this depends on the nature of the renovations and Luxon’s circumstance. Luxon would also be able to deduct costs incurred in selling the apartment, like real estate agent fees. These too would have reduced the amount on which Luxon would have been required to pay tax.
A spokesman for the Prime Minister said, “[t]he management of the Luxons’ properties are private matters which are unrelated to Mr Luxon’s capacity as Prime Minister”.
The timing of Luxon’s move into Premier House is due to the fact it was recently renovated and not because by selling the apartment now, Luxon has avoided the bright-line test.
“The Prime Minister has been clear on his position on new taxes. A capital gains tax, which the Labour Party wants, would stifle investment. As a Government, we’re trying to attract more investment, not discourage it,” the spokesman said.
Labour Deputy leader Carmel Sepuloni told the Herald: “Based on the TVNZ figures, that’s a lot of money to make off the sale of a single property.”
She also mentioned the sale of one of Luxon’s other investment properties in Auckland, reportedly making a capital gain of $280,000. This property would not have been subject to the two-, five-, or 10-year bright-line tests based on when Luxon purchased and sold the property.
“This is a high-profile example of income that is currently untaxed. Christopher Luxon has been able to make almost half a million dollars, simply by buying two houses and selling them a few years later. At the same time, a minimum wage worker is taxed for every dollar earned. This is a conversation I am pleased we are having as a country,” she said.
She reiterated Labour’s position of looking at new revenue tools to cater for the increasing cost of delivering public services.
“We have an ageing population in New Zealand, and the cost of healthcare and Superannuation is going to cost the country a lot more in the future. We have to figure out how we will pay for that, and Labour believes you cannot just cut your way to prosperity because that will result in poorer outcomes for a lot of people,” Sepuloni said.
Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.
