The Prospect of a Potential Capital Gains Tax and What It Could Mean for Property Investors
- Staircase Financial
- Oct 30
- 5 min read
The prospect of a Capital Gains Tax (CGT), signalled by Labour for introduction on 1 July 2027, has reignited debate about the future of residential property investment in New Zealand.
While the idea of taxing capital gains may sound unsettling to investors, the fine print and international precedents paint a far calmer picture than the headlines suggest.
Labour says the proposed 28% tax will fund free GP visits for every New Zealander, and may improve affordability while critics argue it risks discouraging investment.
Economists such as Tony Alexander caution that “there are too many unknowns to say for certain affordability will improve” in a recent OneRoof article.
What Is the Proposed Capital Gains Tax?
The draft proposal targets profits from selling investment or commercial property but excludes the family home and farms. Gains made before July 2027 are unaffected; only those accrued after that date would be taxed, likely at a flat 28% rate, aligned with the company tax rate.
According to RNZ, investors will be required to obtain a formal valuation on 1 July 2027 to establish the baseline value of their properties. Only gains above that will be taxed.
The NZ Herald reports that it’s unclear whether mortgage interest and holding costs will be deductible against future CGT, a key factor that could influence investor returns.
Losses, under the current outline, may only offset other capital gains, not rental or wage income.
That means there’s still a clear window of opportunity between now and mid 2027 for investors to purchase and achieve gains entirely tax free before the rule change takes effect.
The Bright Line Backdrop
New Zealand already taxes short term flips through the bright line test, which is now set at two years. Anyone buying and selling within two years pays tax on their profit as income.The proposed CGT would simply extend taxation to longer term gains, making the system more consistent, but crucially, not retrospective.
How This Affects Property Investors
The CGT proposal has generated predictable noise about investors being “punished”. Yet the facts suggest it’s more of a tidy up than a revolution.
In practical terms, the move:
Leaves 90% of homeowners untouched (family homes remain exempt).
Applies only to future gains, not historic ones.
Aligns New Zealand with most advanced economies, which have taxed capital gains for decades without crushing property markets.
However, several design gaps remain, particularly how deductions, losses, and valuations will be treated.
In short though it closes a long criticised gap in the tax system which favours property capital gains over other investments capital gains, which are already taxed, rather than rewriting the rules of property investment altogether.
Global Examples: Australia, UK, and Canada
If history is any guide, the property market will adapt quickly and continue to thrive.
Australia (CGT introduced 1985):
Far from collapsing, Australia’s housing market surged through the late 1980s. Despite the new tax, strong demand and falling interest rates fuelled one of the biggest property booms of that decade.
United Kingdom (CGT introduced 1965):
House prices rose steadily through the late 1960s and early 1970s. The new tax did not trigger any prolonged slump. Britain’s housing cycles continued to follow inflation, interest rate and demographic trends.
Canada (CGT introduced 1972):
Canadian home prices climbed through the 1970s, even as gains on investment properties were taxed. The principal residence exemption, identical to New Zealand’s proposed approach, protected homeowners while keeping investor activity largely intact.
In all three cases, CGT had minimal long term effect on prices. Markets adjusted quickly, and property remained a preferred investment vehicle. The real drivers of house prices continued to be interest rates, demographics, population growth, and housing supply not tax policy.
Likely Short Term Effects for New Zealand
The most immediate impact will be behavioural, not structural:
Some pre 2027 selling: Some investors will take advantage of the pre start window to crystallise tax free gains before the new rules apply. This could temporarily lift sales volumes in late 2026 and early 2027.
Post 2027 pause: Once the law is in, many investors will hold longer to defer tax, reducing property churn. Economists call this the “lock in” effect, which can actually stabilise markets and reduce speculative flipping.
Rent implications: A few landlords may try to lift rents to offset the perceived future tax cost, but with interest deductibility fully restored from April 2025, the net effect on rental yields should be limited.
Likely Impact on Property Prices
The big lesson from abroad is that CGT changes the timing of sales, as investors hold property longer, more than the level of prices.
Even where tax rates were higher than the 28% being proposed here, property values continued to rise once fundamentals reasserted themselves.
For New Zealand, where population growth, demographic trends and interest rate shifts remain the key market drivers, a CGT is unlikely to alter the long term price trajectory.
What it means for Investors now
For residential investors, the next two years may be among the best opportunities in decades because if you buy before July 2027 and any capital gain made before the start date remains entirely tax free.
Calmer markets, not collapsing ones
If anything, a CGT may cool the extremes.
With less flipping and more deliberate long term holds, the residential market could become more stable and predictable.
Investors will still chase capital growth, but speculators frenzy in the hottest market boom times could ease, much as it did in Australia and Canada initially when CGT became part of the landscape.
This stabilisation could help prevent the boom/bust volatility seen in recent cycles, supporting a healthier recovery phase.
Why the Market Will Adapt
Homes remain tax free.
Owner occupiers keep the full benefit of their home’s appreciation.
Gains to date stay safe.
No one loses what they’ve already built, only new profits after July 2027 are affected.
Moderate, mainstream design.
A 28% rate and narrow scope place NZ squarely in line with comparable markets.
Opportunities abound.
Investors can act strategically now to position pre CGT.
Market history is clear:
In every comparable economy, property values resumed rising, in some cases aggressively, within a year or two of CGT’s start.
The Staircase View
At Staircase, we see this as an evolution, not a revolution.
Property will remain one of the most powerful wealth building vehicles in New Zealand, just one that operates on a slightly more level tax footing.
The proposed CGT acts as another cycle driver, shifting emphasis from speculative capital gains toward sustainable long term returns and should be viewed as a timing and planning challenge, not a threat.
Investors who understand the rules, plan ahead, and select properties for long term performance rather than short term speculation will continue to prosper.
If history repeats, by the time CGT arrives in 2027 the market will already have adapted and investors who stayed focused on fundamentals, not fear, will be the ones who gain most.
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