NZ may tighten property investment tax rules

Focus on capital gains intention test, loss from rental

New Zealand’s government may tighten existing rules around capital gains as part of a review of the taxation of property investment, according to Finance Minister Bill English.

Part of the government’s focus will be on the test used to assess whether a purchaser intends to be a long-term owner, Mr English said in Wellington yesterday. The government will also review whether losses from rental properties be ‘ring fenced’ so they can’t be used to offset other income for tax purposes.

Prime Minister John Key on Tuesday said that the government will announce a package of tax reforms in the May 20 budget that will buoy investment, savings and economic growth. He said that the government will make changes to the way property is taxed while ruling out recommendations for a tax on land and returns from investment property, and a ‘comprehensive’ capital gains tax.

‘What’s on the table is a discussion about the detail of the existing taxation of capital gains and whether there is more clarity and enforceability around that,’ Mr English told the finance and expenditure select committee in Wellington yesterday. ‘A good example is the intention test around the purchase of residential property.’

Mr English refused to provide further details on what form new property taxes may take.

‘We’ll have to be fairly sure about how much revenue will come from changing the taxation of property,’ he said. ‘That will take some pinning down because it’s a sector if, where you shift the rules, the behaviour shifts and you could end up not getting the revenue you expected.’

Mr Key on Tuesday said that the government’s tax reforms may include cuts to personal tax rates, and will pay for them by raising the rate of sales tax to 15 per cent from 12.5 per cent.

Mr English yesterday said that the intent of the tax changes is to encourage people to work harder and buoy economic growth.

‘The package is designed in the longer term to lift our economic performance by giving people the incentive to do the things we think are important for the economy,’ he told reporters after his testimony.

‘When you’ve got an economy where we generally do spend more than we earn, where we need more investment and savings, then we want to reduce the tax on those things that are going to help us develop better balance in the economy, and that’ll be paid for by taxes on things like consumption where we’ve had a bit of a binge,’ he said.

Source : Business Times – 11 Feb 2010