Planned 28% tax is expected to temper price inflation
Labour’s proposal to introduce a capital gains tax (CGT) on investment property could alter how New Zealanders approach housing as an investment, economists and tax experts say, with potential ripple effects on prices, returns, and long-standing attitudes toward property ownership.
The policy would apply a 28% tax on profits from the sale of investment and rental properties purchased after 1 July 2027. Family homes and farms would remain exempt, while the revenue would fund three free doctor visits a year for every New Zealander.
New Zealand has long stood out among developed economies for not taxing most capital gains, even as house prices have soared over the past two decades. While the bright-line test already captures some short-term property sales, it applies only within a set ownership period and at a person’s marginal income-tax rate. Labour’s version of the CGT would go further – removing time limits and setting a flat rate.
Robyn Walker, tax partner at Deloitte, said the change would mean property owners could no longer assume their investment gains were beyond the reach of the tax system.
“People who own residential property would need to know their value at the point the policy takes effect. When they sell, they’ll pay tax on the difference between that base value and the sale price, minus the money they’ve spent on the property,” Walker said, describing the measure as a “sensible middle ground,” echoing the minority view of the 2018 Tax Working Group, which favoured taxing only certain assets to limit complexity.
Economists believe the proposal would likely temper speculative activity but not stop property values from rising altogether. Kelvin Davidson (pictured), chief property economist at CoreLogic, noted that other countries with capital gains taxes still experienced sustained housing growth.
“It reduces your return, but there will probably still be capital gains even with a CGT in place. At the margins, it probably does slow down the rate of house price growth,” Davidson said.
He added that several of the conditions that fuelled rapid price escalation – such as falling interest rates and tight land supply – have already eased: “If those truly are the key factors that have driven up house prices historically, then you’d have to say there probably will be a lower rate of house price growth in future than there has been in the past.”
The ability to offset losses against gains would also provide some relief for investors, according to Walker, who said such losses could be carried forward to reduce future liabilities on other properties.
The proposed start date of July 2027 gives investors time to adjust strategies and evaluate how the tax might affect their returns. It also reopens a longstanding debate over fairness in the tax system – particularly between those earning wages and those earning from appreciating assets.
“The idea is that it’s only triggered on realisation. You have to have sold the property, you’ve made the gain, you’ve got the cash to pay the tax. That’s a lot better than something like a wealth tax where you pay annually regardless of cash flow,” Walker said.
Davidson said those wishing to avoid the tax could simply hold their properties longer.
“There can be a very long lag between a government announcing a capital gains tax, putting it into policy, and actually collecting revenue off it.”
