Capital Gains Tax (if it happens): what will be the effects on rental properties? What strategies could be employed to minimise tax effects? Here is a high-level overview:
WHAT WILL BE TAXED?
Everything except your grandma.
No, not quite. All land except family home, shares, business assets and intangible property. Seems that cars, boats, jewellry, fine art, collectibles and other household durable items would also be excluded.
HOW MUCH TAX?
At present, it would be at the tax rate of who/whatever owns the asset i.e. if a person, and they are earning $70k/year, then 33c/$. However, the common view is that this will be watered down to something more like the Australian rate, which is a flat 15c/$.
That being said, the proposal is to extend the lowest tax threshold of 10.5c/$ from $14k/ year to $20k/year, which is $420/year extra. Break out the party poppers.
Note also, that the proposal includes allowing depreciation on buildings once again. The more things change the more they stay the same! It would also allow deductions for seismic strengthening, something more likely to help commercial property investors.
WHAT'S THE TIMEFRAME?
It isn't going to be backdated, but seems that businesses will have up to five years to work out what the market value of the assets as at April 2021 was.
WHO WILL BE TAXED?
You'll pay CGT on your worldwide assets if you* are tax resident in NZ, e.g., sell a rental property in Australia: CGT will be calculated in NZ. One would imagine however, that where there is a Double Tax Agreement (DTA), then that country has primary taxing rights, and NZ would recognise the CGT paid on that asset sale.
We asked MortgageLab to give us their unique perspective as mortgage advisors. You'll enjoy reading some useful insights and tips from Rupert Gough here.
Forsyth Barr make the following observations:
For more insights and advice on your portfolio, go to
* By "you" we mean the entity that owns the asset
+ Note that if you use part of your family home for Airbnb or want to claim home office costs or if the home is bigger than 4500 m2, then CGT would apply. See this link for more info.
Reference to comments by Mortgage Lab and Forsyth Barr is done with kind permission of each party. This does not constitute an endorsement of Epsomtax.com Limited. All rights belong to their respective owners.
Accounting for your rental residential investment property; general taxation advice.