The family home, farms, and other assets will be exempt from Labour's recently announced CGT policy. Photo: RNZ
The public will not find out until after the election how Labour would handle the thousands of property valuations needed for its capital gains tax (CGT) policy.
Under the CGT policy released early on Tuesday - in the wake of leaks to RNZ over the weekend - profits from selling commercial and residential properties would face a 28 percent tax.
The family home, farms, and other assets would be exempt.
The policy would only apply to gains in the property's value since 1 July 2027, and the party has made clear homeowners would have five years to seek a valuation of the property as it was at that date - in line with the Tax Working Group's report.
But many of the other details remain unclear, including:
- What kinds of valuation could be used or how many methods would be available
- Who pays for the valuations
- Whether property owners could contest valuations
- What happens if a property does not get a valuation within the five-year period
The Tax Working Group (TWG) report recommended Inland Revenue be tasked with providing guidance on what valuation methods would be acceptable.
In a statement, Labour's finance spokesperson Barbara Edmonds said the party would follow the tax working group's recommendations to "get the right balance between accuracy and simplicity for taxpayers".
She confirmed many of the details would be ironed out after the election, should Labour win.
Labour's finance spokesperson Barbara Edmonds confirmed many of the details would be ironed out after the election, should the party win. Photo: RNZ / Samuel Rillstone
"Inland Revenue will provide guidance, and as with any tax policy there will be a thorough policy process to make sure the rules are workable and effective once in government."
Edmonds declined to be interviewed about the matter.
RNZ sought comment from Inland Revenue about whether such guidance might already have been produced for similar legislation.
A spokesperson for Inland Revenue said it would be inappropriate to provide policy analysis for an opposition party's policy, and the approaches used for the bright line test, for example, were "not relevant as that test does not use a Valuation Day".
What would the options be?
The TWG report discussed some options for valuation, but did not make clear which should be selected.
For instance, Rateable Value or RV - which gets updated once every three years and is used to calculate council rates bills - was "easily obtainable, but may be inaccurate depending on when it was last updated".
The other option discussed in relation to land property was a comparison with similar properties in the area which "could be done on a case-by-case basis or using an algorithm already commonly available".
This would make use of the kinds of data produced by companies like Cotality or QV using an "Automated Valuation Model" or AVM.
Cotality's chief property economist Kelvin Davidson told RNZ their method produced computer-based valuations for banks for lending purposes and was able to value every property in the country roughly every week or so.
"The AVMS or the computer-based valuations look at comparable sales for the similar properties in the area - factors in what they might have sold for, looks at bedroom count, land size, all of these different variables - to try and come up with a really fact based estimate of what the value would be on any given date.
"There's a lot of back testing done to verify that and also close to what a physical valuer would do."
Davidson said physical inspection of the property - which was not discussed in the TWG paper - was the "gold standard" of valuations, but it was "certainly not going to be practical to have a valuer visiting every single property that could be relevant".
The "tidiest" solution - and certainly cheaper than a physical inspection - would be to get an AVM valuation for everything on the day, he said.
"But of course, that could be a mass valuation exercise which will come with extra cost and there's a question here about who the cost falls on for these valuations: does it fall on the government of the day to pay that, does it fall on the individual property owners?"
He said alternatively the five-year grace period could work if that cost was expected to fall on property owners, who would be incentivised to try to get their valuations as high as possible.
"You reduce the amount of capital gains that could be subject to tax, so yes depending on what the valuations are as of 1 July 2027 there may well be some objections."
The TWG report also looked into what happens if the owner doesn't get a valuation within the five-year period, recommending a "default" valuation method be used in that case.
It set out a rather blunt "straight line" method as one possibility: looking at the price the last time the property was sold and drawing a straight line to the price at sale - and seeing what the price would have been on the 1 July date.
That approach could, however, produce wildly different values to the other valuation methods - and it remains unclear whether owners would have a choice about which method is used at that point.
Taxpayers may not know what solutions to all these questions they might be voting on until after the fact.
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