Capital gains tax is now dead in the water – so what’s next?


Many investors breathed a sigh of relief when it was announced Jacinda Ardern would not take on board the tax working group’s recommendations to implement a capital gains tax (CGT).

And we can be sure this shouldn’t come again for a while – Jacinda was adamant it won’t happen while she is at the helm, and if National were to get in at the next election, it’s even less likely to be introduced. Property commentator Ashley Church thinks it will be off the table for up to the next 20 years.

But other changes are impending. Ring fencing tax losses on investment properties is likely to apply to the 2019-20 tax year and beyond. It’s arguably more damaging to investors as it impacts annual cash flow, Church says.

Significant amounts of legislative change – from the Healthy Homes legislation and more – has seen a jump in compliance costs for rental properties for things like heating, insulation, ventilation, moisture control and draught-stopping.

At 360 Property Management, we think these are not bad steps. In fact, things such as improving ventilation and moisture control will positively impact your investment long term, so while the upfront cost may seem daunting, over time, these measures are likely to save you money! (Not to mention the fact happy tenants means lower turnover!)

When Ardern announced she would not be pushing CGT, she mentioned there was more the Government could do to “improve the fairness of the tax system”, particularly around land speculation. We are unsure what this means, and what the Government can actually do to address land banking and speculation. As Church mentions, any tax penalty on the sale of undeveloped land would form a type of capital gains tax, which Ardern has categorically ruled out.

Despite the intention of the Government to make laws more ‘tenant friendly’, the immediate impact we are seeing is an increase in rents – due to increase in compliance costs, overall costs, and a reduction in the supply of rental properties due to investors exiting the market. This is not necessarily a bad thing for investors who choose to remain in the market – their properties become more valuable – but ultimately, it hurts the tenant.

House prices are also expected to remain relatively flat for the next few years, but in our experience, this is just a typical cycle of the market. Church believes the next cycle will start “slowly, probably sometime between 2021 and 2022, with house prices increasing more rapidly until the peak of the next cycle which will be in around 2026 or 2027”.

So, the best thing to do as an investor is to sit tight, be sure in the strength of your investment, continue with maintenance and compliance efforts and you will continue to reap the rewards.