Capital gains tax

What is the problem we’re trying to fix?

Most people make their income from working a job and receiving wages or a salary. Every dollar of this income is taxed. 

Some people make income from buying assets that increase in value over time and selling them later for a profit. Common examples of assets are investment properties and company shares. Unlike income from working a job, income from selling assets is not usually taxed in New Zealand. 

This means people who can afford to buy and sell expensive assets are often taxed at a lower rate than people who work hard for a living. In fact, the richest New Zealanders effectively only pay a  9% tax rate, on average middle-income people pay 20%! Not only is this unfair, it also deprives the government of the money it needs to improve education, healthcare, and other public services for everyone.

How does a capital gains tax work?

A capital gains tax is a tax on the profit people make from selling assets. For example:

Jo buys a house for $500,000 and sells it five years later for $600,000 (without having made any improvements to it). Jo's profit is $100,000. Under a capital gains tax rate of 28%, Jo would pay $28,000 in tax when Jo sells the house. Jo would still get to keep the rest of the profit ($72,000) as income.

Capital gains on investment property is a good start. We think capital gains taxes should also apply to other big assets like company shares and bonds. The family home would not be included, and you could still sell small assets like furniture, appliances, and the family car without being taxed.

Why would a capital gains tax make things better?

A capital gains tax is a common-sense way to make the tax system fairer. There are details that would need to be worked out (such as which assets would be included), every other developed nation has some form of capital gains tax. 

A capital gains tax should encourage people to invest in more productive assets, rather than investment property speculation. And because a capital gains tax only applies when a person makes a profit from selling an asset they have the means to pay.

Although a capital gains tax can take a while to start bringing in revenue for the government, because it only applies when people sell their assets, over time it will generate resources to enable our government to pay for things that matter, like hospitals, schools and infrastructure.