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.
Any gains on the sale of these assets would be added to the seller’s overall yearly income and be taxed normally at realisation – meaning a CGT would only take effect when it becomes law.
Other assets – such as the family home, cars, boats and art – would be exempt from a CGT.
The key report recommendations
• Capital gains tax to apply after the sale of residential property, businesses, shares, all land and buildings except the family home, and intangibles such as intellectual property and goodwill.
• Tax rate to be set at the income-earner’s top tax rate, likely to be 33 per cent for most.
• Calculation of gains not to be retrospective – tax to be applied to gains made after April 2021.
• Art, boats, cars, bikes, jewellery, personal household items and the family home to be exempt.
• Losses on the sale of assets bought before April 2021 will generally be able to be used to reduce paid on gains from other assets.
• Increase the threshold of the lowest tax rate (10.5 per cent), allowing more income to be taxed at the lower rate.
• Increase social welfare net benefits to allow similar benefits as low-income earners post tax threshold adjustments.
• House on farms and surrounding land up to 4500 sq metres exempt from CGT, calculated as a percentage of total farm value.
• CGT on small businesses can be deferred (roll over relief) if annual turnover is less than $5 million and sale proceeds are reinvested in similar asset class.
• No support to make company tax progressive, i.e. smaller companies paying less than 28 per cent.
• Capital gains tax estimated to raise $8.3 billion over five years.
• Expand coverage and rate of Waste Disposal Levy, expand the ETS and use congestion charging.
• Better tax benefits for KiwiSavers on low and middle incomes.
The Government would now be investigating the report’s recommendations. That would include working on building a consensus with Government support parties NZ First and the Greens.
The Government would be looking at the report and assessing what would be the fairest way forward.