Capital Gain Tax Introduction

After decades of back and forth about whether to introduce a capital gain tax or not, and whether it should be a comprehensive tax or a narrow one, there have been many changes over the last 20 years. These range from the introduction of the Bright-Line Test, its extension from two years to five years, then to ten years, and later back to two years.
The Tax Working Group had mentioned that New Zealand should have a comprehensive capital gain tax, not a narrow one, meaning it should apply across the board, including KiwiSaver and other investments.

We, as Kiwis, have a very strong attachment to property, and any capital gain tax policy has a huge effect on voters. That is why changes to rental property deductions and related policies always attract heavy interest during elections.

For the upcoming election next year, the Labour Party has announced its new tax policy. As per their release on 28 October 2025 at 5:00 a.m. on their website (labour.org.nz), they mentioned a targeted tax aimed at growing the economy and funding free doctor visits.

They are specifically talking about making the capital gain tax narrowly targeted and applicable to a small group of people. Let’s get into it and see what they’re talking about. Very little information is available at this stage, but based on what’s on their website, I’ll try to provide you an update.

Scope of the Proposed Capital Gain Tax

Based on the current information, the capital gain tax Labour is talking about will apply to both residential and commercial properties.

Previously, the Bright-Line Test applied only to residential rental properties, while commercial properties were excluded. As a result, many investors started buying commercial properties instead of residential ones.

Later, the interest deduction limitation rule came in, allowing new builds to claim interest deductions, while existing properties were not permitted. This led investors to favour new builds over existing homes.

Now, Labour has specifically mentioned in their policy that both residential and commercial properties will be targeted under this new capital gain tax.

Introduction Date

A very important point, the introduction date mentioned is 1 July 2027.

According to the proposal, when you sell a property, whether residential or commercial and make any gains after 1 July 2027, those gains will be taxed.

Tax Rate

The proposed tax rate is 28%. There will be specific returns and forms to be filed for gains made on the sale of property, and this 28% tax will apply to those gains.

This plan will, of course, depend on Labour winning the election. They are not currently the governing party, so implementation will only proceed if they form the next government.

Valuation at the Date of Introduction

Another key point is the valuation of property as of 1 July 2027.

For example, if you bought a property in the year 2000 for $400,000, and you sell it in 2030 for $2,000,000, the gain is $1.6 million.

However, under this proposed rule, there would likely be a valuation carried out on 1 July 2027. Suppose that valuation comes to $1.5 million, this becomes your new cost base.

That means the gain from $400,000 to $1.5 million occurred before 1 July 2027 and is not taxable, while the gain from $1.5 million to $2 million ($500,000) would be taxed at 28%.

The detailed valuation methods (e.g., market valuation, registered valuer, etc.) are yet to be released, but this seems to be the intended approach.

More details on this will be available if the policy becomes legislation. 

Expert Views and Observations

Many tax experts, including Craig Elliffe from Otago University and the Tax Working Group, have supported this proposed approach. They note that it is a targeted and clear policy, which avoids confusion about purchase and sale dates that have long complicated the Bright-Line rules.

This proposal means that all property types, residential and commercial, would be subject to capital gain tax on any gains made after 1 July 2027.

If implemented, this could be a major tax reform and a significant change in how property taxation is handled in New Zealand.

Political Considerations

However, as noted earlier, this will only move forward if Labour wins the election. Currently, they are not in power, so this is a policy announcement, not legislation.

Chris Hipkins, the Labour leader, has completely ruled out the introduction of a wealth tax, despite calls from the Green Party and Te Pāti Māori. He has said that while those parties may push for it if they become majority partners, the chances are very slim.

As it stands, Labour’s proposal is a targeted capital gain tax focused only on residential and commercial property. It does not apply to other capital assets such as shares, KiwiSaver, or financial investments.

Conclusion

More announcements and clarifications are expected as the election approaches. The Labour Party will likely release further details explaining how the tax will work and how the revenue will be used, such as for funding free doctor visits and other social programmes.

This will be one of the most closely watched tax proposals in New Zealand’s upcoming election. We’ll continue monitoring developments and share updates as more information becomes available.