Properties give their owners a tax-free windfall - is that fair?

Tuesday, 4 September 2018

Broadcasters Mike Hosking and Kate Hawkesby have sold their Remuera home for $2.6m over its CV.

When Kate Hawkesby and Mike Hosking sold their Remuera home recently, they banked about $4.1 million in capital gains.

The Arney Rd property was bought in 2015 for $5.5m and sold this year for $9.6m.

That means the property made $1.3m a year, on average, for each year they owned it, or $3561 a day.

Nice work if you can get it - and under current tax laws, they did not have to pay any tax on the capital gain.

* Kate Hawkesby bemoans state of rental market

* Greens reaffirm capital gains tax policy, if in Government**

By contrast, someone who has just qualified as a nurse can expect to earn about $26.50 an hour, in the new deal the nurses' union has signed.

That person would have to work for 49,000 hours to make $1.3m, or all day, every day for more than five years.

Rising house prices have provided tax-free gains to those who were already homeowners, and made life tougher for those who were not.

Under normal circumstances, they would then be asked to hand over about 18 per cent to Inland Revenue in tax.

Cameron Bagrie, of Bagrie Economics, said rising house prices had been one of the big drivers of income inequality in recent years.

'In a perfect world we would have some sort of wealth tax or capital gains tax. We tax the hell out of labour income but we don't tax the capital gains of property income.

Economist Cameron Bagrie says a capital gains tax should apply to family homes.

'Technically there is scope to do that but we are economically incentivised to have an awful lot of money tided up in our own home. It's great for some of us who are on that property ladder but if you're not it's hellishly hard to accumulate wealth.'

He said New Zealand needed a capital gains tax that included the family home, although the working group tasked with considering potential changes to the tax regime has ruled that out. 'It's a political hot potato that no one wants to touch with a 10-foot barge pole.'

Economist Ryan Greenaway-McGrevy, from the University of Auckland Business School said a comprehensive land tax, with income tax relief for low-income landowners, would have fewer negative unintended consequence and a few positive unintended consequences, while achieving the same goals.

Hosking and Hawkesby are not alone in owning a money-making property.

A Burwood Crescent, Remuera, home sold for $2.5m in 2001 and is now estimated to be worth just under $15m. That's a gain of almost $12.5 million in 17 years, or $735,294 a year - or 14 times what that starting out nurse would bring home in 12 months.

A property at 191 St Heliers Bay Rd sold for $3.2m in 2002 and is now worth $13.73m - leaving more than $10m in gains, or $625,000 a year.

If New Zealand had a capital gains tax of 10 per cent, implemented on sale, the Hosking-Hawkesby family would have had to pay more than $400,000 in tax on the deal.

The country already taxes capital gains on investment properties, when they are bought and sold within five years, through the 'bright line' rule.

The same applies if a property is bought with the clear intention of sale, irrespective of how long it is held for.