We'll back the CGT if it applies to family homes - NZ Property Investors' Federation

Property investors say they'll back a capital gains tax if it applies family homes, too.

The Labour-NZ First Government is considering whether to adopt recommendations made by the Tax Working Group (TWG), including a capital gains tax (CGT) on properties that aren't the family home - such as rental homes and properties bought to sell at a higher price in the future.

On Sunday Newshub reported on a landlord who took to social media to encourage others to try "scaremongering" their tenants into voting against Labour in 2020 by threatening to raise their rents by 10 percent.

And Newshub has since seen a letter from a landlord sent to a tenant which explicitly cites "the actions of the present Labour-led Coalition Government" for raising their rent.

Andrew King of the NZ Property Investors' Federation (NZPIF) told Newshub there was a "real depth of feeling by rental property providers and it isn't surprising that some of them will hold views like this".

He reiterated that view to Magic Talk's Brendan Telfer on Monday, saying it's understandable because landlords "have been feeling under the gun for a number of years now".

"There have been LVR restrictions, they're looking at bringing in ring-fencing of losses to make it that the tenant gets to say how long they stay and make it harder for the landlord to get rid of tenants, which makes it harder to manage," he said, also citing a discussion document which could give tenants more rights to have pets.

"All of this puts people off providing rental property at a time when we have a rental property crisis."

But it's the suggestion of a comprehensive CGT that has landlords most worried. The TWG's recommendation is that only capital gains made from the date the law is in place - expected to be 2021 - would be taxed.

Andrew King.
Andrew King. Photo credit: The AM Show

For example: if you bought a house in 2010 for $500,000 and sold it in 2022 for $1,000,000, it's unlikely you'll pay the full 33 percent of the capital gain - $165,000 - in tax. If the property was valued in 2021 at $900,000, you'd only pay $33,000 - 33 percent of the gain made since the introduction of the law.

While capital gains taxes already apply to property investors, there are numerous loopholes noted on the Inland Revenue website. The CGT, as recommended by the TWG, would close many of those and apply to other forms of investment too - but Mr King doubts that'll happen.

"The rhetoric we're seeing at the moment is it's not going to be like that. The Prime Minister has already said that businesses and farmers are going to be top of mind - I think that's code for 'we're not going to apply it to them'. Other people are saying the financial markets, they can't have it as well, people with baches, they can't have it as well.

"The only thing that people seem to be concerned about is rental property. If it was just applied to rental property, I think that is grossly wrong."

If the CGT was applied to everything - businesses, farms, assets, even the family home - Mr King says the NZPIF "wouldn't have a problem" with it.

"If that was the case, I don't think we'd have an argument with it because it would be fair, it would be across everybody. Although a lot of people are saying it should be on the family home as well, and there's certainly a good argument for that."

Though many homeowners do benefit a significant windfall when they sell up, suggesting a CGT apply to the family home has long been a political no-go. But Mr King thinks if the TWG's CGT is introduced - in full or watered down - it's only a matter of time before it'll apply to family homes.

"Because they're trying to reduce house prices, and yet two-thirds of housing in New Zealand is actually [owner-occupied] homes. [The TWG recommendation] it isn't going to do what they want."

If it does reduce house prices Mr King says investors will bail, leaving fewer rentals at a time when there's growing demand. While this will bring more houses onto the market for buyers, Mr King believes rising rents will mean it's no easier for many tenants to save up for a deposit on their own place.

"People forget that it's tenants at the end of the day who are going to pay the price for this through increased rents."

Will a CGT deter landlords?

Not everyone thinks a CGT would see landlords sell up their portfolios.

Dr Grant Duncan, lecturer in politics at Massey University's Albany campus in Auckland, said there's still money to be made.

"Just because you get taxed doesn't mean you won't do anything," he told Magic Talk. "I get taxed in my job but I still do it, so a tax isn't a complete disincentive to do something."

Simon Bridges.
Simon Bridges. Photo credit: The AM Show

He said Labour is failing to sell the benefits of the CGT, letting the Opposition get the headlines. National Party leader Simon Bridges has been particularly vocal, calling it an "attack on the Kiwi way of life" and regularly tweeting examples of what he thinks are loopholes, distortions and unfair clauses in the TWG's recommendations.

"One wonders whether the idea is kind of being set up to fail, or maybe just some kind of revision of the bright-line test that National introduced to tighten that up," said Dr Duncan.

Mr Bridges has vowed to repeal any CGT introduced by the Government if National is back in power, and reduce the bright-line test back to two years. It was introduced at two years by National under John Key in 2015, but increased to five years by the Coalition Government in 2018.

The Government is expected to formally respond to the TWG's recommendations in April.