At long last New Zealand is going to have an effective capital gains tax. The Prime Minister does not want to call it a capital gains tax but that is what it is. Houses bought as investment property will have their capital gain taxed if they are sold within two years. A two-year liability is very low but it can easily be increased if it does not slow the rate Auckland house prices are rising. The significance of the Government's adoption of this tax should not be under-estimated.
New Zealand has had a capital gains tax for years but it was not enforced unless a taxpayer declared a property had been bought for capital gain. It seemed too hard for the Inland Revenue Department to prove that was the intention of investors in rental houses, even when the rent did not cover their costs. The IRD possibly did not try very hard because there was no political drive to tax capital gains in this country. Quite the opposite.
Until very recently New Zealand's political climate has been deeply averse to taxing capital as income. The most tentative suggestion would bring outrage. The public was perhaps fearful that all houses would be taxed though owner-occupied homes were exempted in most schemes. Whatever the reason, a tax that is a fairly common strand in the revenue net of other countries was a "third rail" issue in this one. Neither of the main political parties would touch it and even tax advisory panels would shy away, pronouncing capital gains too "difficult".