The Capital Gains Tax proposals are throwing up some oddities. A family home on a section up to 4500 sqm won't be subject to CGT, but the percentage of land over that 4500 sqm will be. Hundreds of sections are on blocks, where a steep unusable section is covered in bush, why should that unusable land be subject to CGT?
Also, what about the thousands of Kiwis who live on uneconomic lifestyle blocks? There is one on the market with a block size of 1.2 ha (12,000 sqm) in Eketahuna at the moment, for $195,000.00. Under the proposed rules 7500 sqm of that block will be subject to CGT, whereas the apartment on Oriental Bay, Wellington, worth $2,500,000.00 will not be. It also gets worse for the family in Eketahuna - they will have to hire an accountant to work out the proportion of land is subject to CGT, whereas on bluechip row Oriental Bay, there is no complex formula or CGT liability due, as the apartment is the family home and the total area is under 250 sqm.
On a more technical note, currently in relation to Kiwisaver, the investments in New Zealand, in shares and the like, will be subject to CGT (at a tax rate of around 28% for people whose income is over $70,000). The regime for shares and dividends from offshore investments is a lot less onerous (i.e considerably a less than 28%). As a matter of commonsense this disparity will potentially lead to an increased flow of investment funds heading offshore.
If the CGT is about fairness, these issues will need to be addressed.
