Govt eyes clearer capital gains tax

Bill English

A more cut-and-dried test for when property transactions incur a capital gains tax and the ring-fencing of tax losses from the property sector are options under consideration, Finance Minister Bill English said yesterday.

Appearing before the finance and expenditure select committee, English was questioned on how much could be read into the fact that the Prime Minister's statement on Tuesday ruled out a "comprehensive" capital gains tax.

Some capital gains were already taxable, he pointed out.

But the test for which side of the revenue/capital boundary a transaction falls on, and therefore whether it gives rise to taxable income, depends on the slippery issue of the seller's intent when the asset was bought.

"There has been discussion about whether the intent test in the tax act is well understood and properly administered, and should there be other tests like a bright line test, for instance a two-year test," he said.

That would make a gain taxable if the vendor had held the property for less than two years.

"I'm not signalling today any particular conclusion the Government might come to."

English also confirmed that ring fencing, or preventing tax losses on investment properties from being used to offset other income, was another option still on the table.

Ring fencing was one of the options considered in 2006 in the context of supplementary instruments to take some pressure off monetary policy and the export sector.

Officials were critical of the idea both in principle and as difficult to police.

"If the advice hasn't changed we will get the same advice," English said.