23 Sep 2015

Accountants warn against property tax

7:46 pm on 23 September 2015

Accountants are warning the Government's tax on capital gains - aimed at curbing property speculation - will leave a trail of collateral damage in its wake.

House for sale in Titahi Bay, Wellington.

Photo: RNZ / Alexander Robertson

The Government's Taxation (Bright-line Test for Residential Land) Bill aims to ensure people pay their fair share of tax on gains from residential property sales bought and sold within two years.

Chartered Accountants Australia and New Zealand told a parliamentary select committee today the so-called bright-line test would be a blunt instrument.

Its Tax New Zealand leader, Peter Vial, predicted "collateral damage", saying people who were forced to sell their homes would be caught by the legislation rather than speculators.

"You've got someone who buys a rental property, with no intention of selling it, intends to rent it, and then their personal circumstances change, so they lose their job or have to change their investment, and they sell the property within two years - and that will be caught by the bright-line test," he said.

Stephen Tomlinson from the Law Society said it was a bad idea and should not be enacted as it would not meet its stated policy objective.

Finance and Expenditure committee member Labour MP Grant Robertson said submitters had sent a clear message to the Government - that it had got it wrong.

"We had submitters telling us that anyone who was a speculator would just wait until two years and a couple of days had expired and then they would go on and continue the behaviour they've always had."

But Finance Minister Bill English defended the test.

"I am sure there will be discussions about how the bright-line test actually falls - we would expect that - but people need to understand if it may be taxable under the bright-line test then they probably should be paying tax anyway under the existing law," he said.

The proposed tax is scheduled to take effect from October and is likely to raise $5 million a year.