20 May 2015

CGT will net 2 percent of sales - Labour

2:28 pm on 20 May 2015

The Government's proposed test to tax property investors is likely to affect less than 2 percent of all house sales, the Labour Party says.

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The Government announced on Sunday that properties bought and sold within two years - excluding the family home - would face a tax on capital gains. Photo: 123RF

Capital gains on residential properties bought and sold within two years will soon be taxed.

The new test will be included in tomorrow's Budget and will come into effect from 1 October.

The Government has said about one in six houses in Auckland are sold within two years of being bought but it is unknown how many of those are investment properties.

The change to tax rules, announced on Sunday, will not apply to the family home, death estates or properties sold as part of a relationship property settlement.

Labour leader Andrew Little at today's stand-up at Parliament.

Labour leader Andrew Little speaks to reporters about the change to tax rules shortly after its announcement. Photo: RNZ / Jane Patterson

Prime Minister John Key told Parliament yesterday that analysis by the Ministry of Business, Innovation and Employment (MBIE) suggested many more investors would fall inside the tax net.

"MBIE's analysis suggests between 17 and 18 percent of Auckland's housing transactions currently involve houses being bought and sold within two years," he said.

"Mr Speaker, I'd be pretty surprised if all of those are paying tax on that and I'd strongly suggest quite a few more will as a result of the 'bright line' test."

But Labour leader Andrew Little said, based on modelling by the Treasury in 2010, the new test was likely to only affect a maximum of 1000 of nearly 80,000 house sales each year.

"We know from the admissions from the Government they've cobbled this together in a great hurry. So I'm not sure there's been a great deal of thought gone into it," he said.

"It looks like it's been put together on the basis that it'll have the barest minimum impact. I guess you could say that they'll certainly achieve that, but it's not going to seriously address the Auckland property price bubble."

The Government has announced an extra $29 million in funding for IRD to enforce the changes, which are estimated to return $420 million in tax over the next five years.

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