Two year bright-line test hits 'sweet spot': IRD

Updated

Inland Revenue revealed today that its advice to Government on the “bright-line Test,” New Zealand’s watered-down capital gains tax, was it should only apply to properties sold within two years of being purchased, not five years which the Labour party promised to implement during the election.

IRD CEO Naomi Ferguson and Acting Deputy Commissioner for Policy and Strategy David Carrigan appeared before the Committee. (Corrects earlier version saying Greg James appeared). Carrigan said they had advised Government that a two year bright line test was preferable, catching speculators, but avoiding long-term investors. Two years was “the sweet spot,” they said.

“When you move the test from two to five years you will certainly catch more speculators…but what you also catch is people who are investing in the long-term,” Carrigan said.

However, they noted that Treasury also gave advice on the policy, but did not make a recommendation.

“Treasury said the arguments go either way and it didn’t offer a view,” Carrigan said

Carrigan also said that 5000 properties would be effected by the rule change once it is fully implemented and that it would bring $50 million in revenue.

The line of questioning was begun by National MPs on the committee, irking Labour members who felt that the questioning deviated from the select committee’s remit which was to assess the performance of the IRD over the previous year.

The bright-line test was introduced in 2015 and operates as a watered-down capital gains tax. It applies to investment properties (not the family home) that are bought and then sold within a two-year period. Labour, then in opposition, announced last year that it would extend the threshold to five years.

Now Minister of Revenue Stuart Nash said the extension would dampen property speculation and make homes more affordable. He also said that the change would enable the Tax Working Group to factor the change to its tax proposals.

(Corrected to replace Carrigan with James; a previous version also stated that 50, 000 properties would be effected, this was a mistake made by IRD during the committee, the article has been updated to reflect the correct figure)