The Tax Working Group is recommending the Government tax more income from capital gains in its final report.

This follows concerns about the structure, fairness and balance of the current tax system.

Group Chair Sir Michael Cullen says our system has many strengths but there is a clear weakness caused by our inconsistent treatment of capital gains.

“New Zealanders earning just salary and wages are taxed on their full income but we have several situations where you can earn income from gains on assets and not be taxed at all.

“All members of the Group agree that more income from capital gains should be taxed from the sale of residential rental properties. The majority of us on the Group, by a margin of 8-3, support going further and broadening that approach to include all land and buildings, business assets, intangible property and shares.

“We have judged that the increase in compliance and efficiency costs is worth it if we can reduce the biases towards certain types of investments and improve the fairness, integrity and fiscal sustainability of the tax system,” Sir Michael says.

The Group recommends that a tax on capital gains would kick in when an asset is sold or changes hands and would be applied with no discounted tax rate and no allowance for inflation. Gains would be calculated from when any new law comes into force.

Three members prefer for this to apply only to residential rental property.

Sir Michael says the Group has presented the Government with choices and options rather than a rigid blueprint.

“The Government doesn’t necessarily need to make a straight call over whether or not to adopt the Group’s preferred model for taxing more capital gains. It could choose to apply it to only some types of assets or stagger the inclusion of different assets over time. It may decide to apply the deemed return method to property. All these options are open to the Government,” he says.

The Tax Working Group estimates that broadly taxing more income from capital gains will raise roughly $8 billion over the first five years.

“If the Government chooses to proceed down this path, it then unlocks opportunities to reduce taxes in other areas so we have given them some options to consider,” says Sir Michael.

Read the Tax Working Group's final report here.