Is there a capital gains tax in NZ?

When you buy and own an asset like property or shares, that asset may increase in value - capital gains are the profit you make from selling them. For example, if you were to buy a house in Auckland for $1 million and sell it for $1.1 million your capital gain would be $100,000. Go you. 

Capital gains tax is simply a tax on the profit you make when you sell an asset. Each country has unique tax laws - but all countries in the OECD (except for one) have a comprehensive capital gains tax that applies to most appreciating assets  

Usually when we talk about a capital gains tax in New Zealand we discuss it in relation to property, but capital gains taxes can apply to things like cryptocurrency, art, stocks, classic cars and more.

No. New Zealand does not have a capital gains tax with the exception of the bright line rule, but we do tax capital gains as income in some instances. For example:

• If you have a history of buying and selling property, you may be deemed a property dealer and have to pay tax. You’ll also need to pay if you’re in the business of selling property, whether you’re a developer or builder. 

• The intention rule: if you buy property with the intention of reselling it for profit you’ll have to pay tax on any profit made from the sale. 

• Gains on some financial instruments: tax may be payable on profit made when selling certain shares and financial instruments in some circumstances. 

It’s important to draw a distinction between the way New Zealand taxes some capital gains as income, and a capital gains tax. Capital gains are usually only taxed if the IRD deems your gain a result of business activity and taxes it as they would any other business income. 

The bright line is the closest thing Aotearoa New Zealand has to a capital gains tax, but it’s a very limited one. It requires that tax be paid on the profits of residential properties that are sold within two years of their purchase. The bright line rule does not apply to:

• Commercial property. 

• The seller’s main home. 

• Inherited property. 

• Any properties acquired before 1 October 2015. 

If you have rented out the property at some stage and used it as your main home, things can get a little tricky. If you sell the property within two years, you’ll pay tax on a percentage of the total capital gain equal to the proportion of time the property was rented out. 

For example, if you have lived in a home 50% of the time and rented it out the other 50% - you may be required to pay tax on 50% of any capital gain if you sell the property within two years. 

Tax under the Bright Line is levied at your highest marginal tax rate, according to which tax bracket you’re in:

• 10.5% - $0 to $14,000

• 17.50% - $14,001 to $48,000

• 30.00% - $48,001 to $70,000

• 33.00% - $70,001 to $180,000

• 39.00% - $180,000 and over. 

For example, if you earn $180,000 a year, your entire capital gain will be taxed at 39%. If you earn $100,000 your entire gain will be taxed at 33% (assuming it’s less than $80,000).

Here’s a slightly more complex example: 

• Let’s say you earned $50,000 income from salary and $50,000 capital gains from the sale of a property that is subject to the Bright Line Rule. 

• The first $10,000 of the gain is taxed at 30%.

• The remaining $40,000 is taxed at 33%. 

If you’ve sold a property that is subject to the bright line rule you can simply complete a Bright-line residential property sale information form - IR833 as part of your income tax return. You’ll need the property title number, dates of purchase and sale and the sale price to file this return. 

If you’re unsure how to return your Bright Line income speak to an accountant with experience preparing tax returns that include Bright Line sales.  

Generally speaking outside of the Bright Line, Aotearoa New Zealand doesn’t have any capital gains taxes, but these taxes are similar in some ways:

• Kiwisaver, managed funds, index funds and Pie funds are taxed at a Prescribed Investor Rate, depending on your income. These rates are 10.5%, 17.5% and 28%. This isn’t a capital gains tax. 

• Income earned from crytpocurrency isn’t subject to a capital gains tax, but when you earn income after profiting from a sale, staking or mining that income will be taxed at your marginal tax rate. 

• Paintings, classic cars and other high value assets: if you were to buy a high value asset and sell it later for a profit, that gain would not be subject to a capital gain tax (or any tax at all) unless you bought the asset with the intention to sell it for a profit or are in the business of trading such assets. 

Generally speaking, if you have an intention of making a profit from an activity, or you’re in a pattern of selling an asset for profit, any capital gains will be taxed as income. The problem is, it’s impossible to know someone’s intentions when they purchase an asset so this rule is near impossible for the IRD to enforce in many cases.