As Australians furiously debate changes to housing taxes, discussion has emerged about whether investors could look to New Zealand for more favourable tax treatments. That's because New Zealand does not impose a broad capital gains tax on investment properties like Australia does. But experts warn there's a catch.
Listen to Australian and world news, and follow trending topics with SBS News Podcasts.
TRANSCRIPT
As fallout from the federal budget continues, some investors have been eyeing New Zealand -- which, unlike Australia, does not have a comprehensive capital gains tax.
Australians are also treated more favourably than most other foreign property buyers under New Zealand's overseas investment rules.
New Zealand uses a time-based rule called the bright-line test to determine when gains on residential investment properties may be taxed.
Profits on residential properties held for more than two years are, in many cases, not taxed.
Mike Reddy, a cross-border tax expert with New Zealand Tax Accountants, says this environment makes life easier for the average seller in New Zealand.
"They're more favourable, they give certainty, and they reduce compliance costs, because there is a fixed two year bright line period. If you've purchased a residential property, you sell it within two years, CGT applies. If you hold it for longer than two years, CGT under the bright line test will no longer apply."
While there are some exceptions, that's still quite different to the system proposed by the Australian government in the 2026 federal budget, which removes the 50 per cent capital gains tax discount that investors in Australia have enjoyed for more than two decades.
The change applies to established homes - new builds are exempt.
So, could New Zealand's more generous capital gains tax really lure more Aussie investors?
Cameron Kusher, an independent property economist, doesn't anticipate Labor's tax reforms will drive any significant investment across the ditch.
"There's a reason why people tend to invest in Australia rather than New Zealand, and I guess there's also a reason why we see so many more New Zealanders coming to Australia than we see people moving the other way. Obviously, Australia is a stronger economy. I think you know you find that a lot of New Zealanders move to Australia because there's more opportunity here in Australia."
Kusher says while many investors are generally quite frustrated by the reforms, he doubts looking to New Zealand is the answer.
Property prices in New Zealand have slumped in recent years, and despite signs of recovery, are still down by more than 15 per cent from their pandemic-era peak.
"Like for like, in terms of affordability, New Zealand probably is somewhat more affordable than Australia is now. But again, I think if you're going to invest in that market, you've probably got to look at what are the prospects going forward. With much slower population growth, with a less diversified economy, I'd probably question for someone in Australia if it's actually worthwhile for them to go and invest in New Zealand."
ANZ chief economist Richard Yetsenga says the changes announced in the federal budget were the most substantial in decades, and would likely influence investment decisions for years to come.
But he's questioned whether investing in New Zealand would provide Australians with a way around the reforms.
"There's lots of ideas floating around, of course, in the two weeks since the budget. It is really a tax question about whether you can get better investment outcomes investing in New Zealand property. If you're an Australian tax resident, you pay tax on your worldwide assets and income under Australian law, so it's not obvious to me — while I'm not a technical expert in the area — that investing in New Zealand property is a way around the changes in the budget."
That's the catch.
Australian residents hoping to benefit from New Zealand's more generous capital gains tax treatment would likely still face tax obligations at home on property sold in New Zealand, according to Mr Reddy.
That's because the Australian Taxation Office [[ATO]] taxes residents on worldwide income.
"Australian tax residents are generally assessed on their worldwide income, so irrespective of any tax they have to pay in New Zealand or don't have to pay in New Zealand, they still have to do the square up under Australian tax rules when they're completing their Australian income tax return."
Reddy says, while the double tax agreement prevents taxes from being paid twice, it doesn't mean Australian residents can use New Zealand's rules at home instead of Australian ones.
"The double tax agreement is just there [so] that stops you from paying tax twice. And so what happens is, as New Zealand gets the tax in the first instance, when you are then completing the Australian income tax return, that's taxed under Australian rules, and you will get a credit for all the tax that was paid in New Zealand. So you'll end up paying the same amount between the two countries as you would, generally, if that property was located somewhere in Australia."
Reddy says misunderstandings about cross-border tax rules are very common.
He says his firm has encountered Australians who made investment moves in New Zealand mistakenly believing they would be exempt from Australian tax obligations.
"It is something that we are seeing a lot of, and unfortunately, spending our time trying to reduce tax penalties where people have either paid their taxes in the wrong country or not made the disclosures in both countries about their activities."
