At the beginning of this month, New Zealand acquired an effective capital gains tax. At least, it could be effective. It taxes any house bought since October 1 and not occupied by its owners if it is sold within two years. That two-year "bright line" gives property lawyers and tax accountants a simple test of liability.
Property investors, lawyers and tax accountants used to always argue that a clear, simple capital gains tax was a contradiction in terms. They convinced generations of politicians. As recently as the election last year, when the Labour Party proposed one, Prime Minister John Key scored debating points with questions about its application to holiday baches and inherited homes that Labour's David Cunliffe could not instantly answer.
When Mr Key announced the bright line test in May he probably expected to hear of all sorts of "complexities" in the months before it took effect. Oddly, he did not. Parliament's select committee heard only semantic quibbles as the legislation went through last month. The law makers have been untroubled by the application of the tax to baches, inherited houses, matrimonial property divisions or anything else.
The tax will apply to holiday homes, as it should. If a bach is bought and sold within two years it was probably bought for an expected capital gain. Who buys one for one or two summer holidays? Likewise it seems reasonable that a house acquired in a divorce settlement should be taxed if sold within two years. A house retained for the good of children is unlikely to be sold within that time.
Equally, it seems fair that a house inherited on the death of a parent will not be subject to the tax. A property acquired in those circumstances is likely to be sold well within two years and the released capital is the inheritance. Having long ago abolished death duties, it would be inconsistent for the country now to tax a deceased estate.
