Capital Gains Tax in New Zealand: What Could It Mean for Property Investors?

Labour has proposed a new policy, and if elected, they will introduce a capital gains tax in New Zealand.

Although the bright-line test still exists in NZ, this is the first we have seen of a comprehensive capital gains tax (CGT).

Labour’s proposal to introduce a targeted CGT from July 2027, taxing profits on residential and commercial property sales (excluding the family home), has sparked renewed debate across the investment landscape. Despite this, the idea of a CGT in New Zealand remains speculative. 

While nothing is confirmed, it’s worth exploring what this could mean for property investors, drawing on lessons from markets like Australia, the UK, and Canada.

At Thrive, we believe in proactive, informed planning, not reactive speculation. So let’s unpack the hypothetical impacts of CGT and what investors should consider if this policy gains traction.

CGT: A Hypothetical, But Worth Planning For

First, let’s be clear: no capital gains tax has been legislated yet.

The proposed framework is forward-looking, applying only to gains made after 1 July 2027, and only when a taxable property is sold. The family home, lifestyle blocks, farms, KiwiSaver, shares, and business assets are all exempt.

This means any planning today is hypothetical, but not unwise, especially for those with ‘taxable’ holdings. In fact, history tells us that markets often react well before a tax is implemented.

What History Tells Us: Global Lessons

Let's take a look back at comparable markets and see how they reacted when CGT was implemented.

In Australia, the introduction of CGT in 1985 didn’t crash the market. Instead, it triggered a short-term spike in transactions as investors rushed to crystallise gains before the tax took effect.

The UK saw similar behaviour during CGT reforms; investors sold early, then paused to reassess.

Let’s consider these in more detail:

In Australia, post-1985 CGT introduction, investor participation in the market remained strong, but this was in large part due to the 50% discount investors would receive on CGT if they held the property for more than 12 months. This, coupled with negative gearing tax benefits, meant that the Australian property market didn’t materially drop, nor did it dampen long-term investment appetite. 

The UK CGT reforms that took place in the 2010s led to a steep rise in corporate ownership of investment properties (or buy-to-lets, as they call it), due to the tax efficiency associated with this ownership structure. Many investors in the UK still choose to buy under company names as opposed to individual names, so they can claim corporate CGT rates (19%) as opposed to personal tax rates (up to 45%). This could save top-rate taxpayers thousands of Pounds when they dispose of the asset. 

The supply-side consequences were also notable in these countries, with UK landlords, for example, holding onto their properties for far longer post CGT, which contributed to rental shortages in some areas. 

When CGT was introduced in Australia, the affordability of homes didn’t greatly improve either because of the supply constraints and tax incentives for negatively geared properties which both contributed to ongoing demand. In fact, investor demand remained high due to the combined effect of negative gearing and strong capital growth expectations, so prices didn’t subdue. 

Key takeaway: If CGT is announced in New Zealand, we may see a busier market in the lead-up to July 2027, not a quieter one.

Investor Sentiment: A Mixed Bag

While transaction volumes may rise temporarily, investor sentiment could soften. CGT introduces a friction cost to selling, which may dampen enthusiasm for short-term plays and speculative flips.

Some investors may exit the market altogether, while others will pivot to longer-term strategies.

This sentiment shift could have unintended consequences: if investors hold onto properties longer to defer tax, supply may tighten further, especially in the rental market. That’s a critical consideration in a country already grappling with housing shortages.

Will CGT Improve Affordability?

Not on its own.

CGT can reduce speculative demand, which may ease upward pressure on prices in some segments. But affordability is a complex equation. Without complementary supply-side reforms, like accelerated new builds, infrastructure investment, and planning reform, CGT alone is unlikely to materially shift the dial.

Markets like Australia and the UK show that CGT must be part of a broader housing strategy to have lasting impact.

Strategic Shifts: What Investors Might Do

If CGT is introduced, expect to see:

• Longer holding periods: Investors will defer sales to avoid triggering tax, favouring buy-and-hold strategies
  

• Trusts and corporate ownership: These vehicles may offer tax planning advantages, prompting a rise in structured ownership
  

• Diversification: Investors may rebalance portfolios toward exempt assets like shares, KiwiSaver, or business ventures
  

• Yield-focused strategies: With capital gains taxed, rental income becomes a more attractive driver of return
  

In short, speculative demand may reduce, but long-term property investment will remain firm. Property remains a tangible, inflation-resistant asset with enduring appeal.

The curious framing of the policy

CGT is a politically contentious topic, especially in New Zealand, because it can be seen as a ‘tax on aspiration’. Property is a primary wealth source for many Kiwis who are setting themselves up for retirement so Labour has framed this as a tax that will fund free doctors visits. 

The switch from “we’re taxing property profits”, to “we’re funding healthcare for everyone” softens the resistance and reframes CGT as a collective good. 

Taxing people specifically for the benefit of healthcare is rare globally so this framing is particularly important for the Labour government as they look to convince people of the benefits.  

When the government is planning its revenue and expenditure, it uses fiscal and monetary policy to outline what this will look like for the country. There is no difference here, except that the Labour policy is wrapping this policy around a popular benefit for the country to lighten the resistance. 

What Should Investors Do Now?

At Thrive, we recommend:

• Stay informed but measured: Monitor policy developments, but avoid knee-jerk decisions
  

• Review your portfolio: Identify properties that may be affected and consider timing options
  

• Seek advice early: Talk to your accountant or adviser about structuring options and valuation planning
  

If a comprehensive CGT was brought in, it would likely reduce speculative demand which will mainly target short-term flippers, but not long-term landlords. This segment of the market will continue to operate with the long-term vision toward a secure retirement. 

Final Thoughts

Capital gains tax is a powerful policy lever, but it’s not a silver bullet. If introduced, it will reshape investor behaviour, but not eliminate property investment. The fundamentals of location, yield, and long-term value remain unchanged.

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