Five year test a better bright line test

The National Government still has time to extend the bright line test to five years to better curb rampant housing speculation, the Green Party said today.

National’s “bright line” rules will apply tomorrow, requiring income tax to be paid on any gains from residential property purchased and sold within two years, with some exceptions.  The exceptions include the sale of an owner’s main home, inherited property, or the transfer of property in a relationship settlement.

“National’s moves to clarify the law around capital gains taxes on property will curb some speculation but a five-year bright line test would be more effective,” said Green Party finance spokesperson Julie Anne Genter.

“A majority of countries in the developed world with a capital gains tax on property have a bright line test of five years or more.

“Those countries that have a two-to-three year bright line test do not exempt the owner’s main home, other than some rare exceptions.

“By extending the bright line test to five years, you will capture more of the damaging property speculation that has been driving housing prices up in Auckland and elsewhere to unaffordable levels.

“Reserve Bank mortgage lending data for the year to August shows the extent of New Zealand’s housing speculation problem, with 45 percent of all mortgage lending going to property investors compared to just 12 percent going to first home buyers.”

The Green Party has supported the bright line legislation on its First Reading and will be working in Select Committee to make constructive changes to the Bill. Its preferred policy remains a comprehensive tax on capital gains excluding the family home.

Source: Michelle Harding (2013), Taxation of Dividend, Interest, and Capital Gain Income, OECD Taxation Working Papers, No. 19, OECD Publishing, p33. Retrieved from: http://dx.doi.org/10.1787/5k3wh96w246k-en

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