Australian property investors are quietly turning their eyes across the Tasman after Treasurer Jim Chalmers handed down a federal budget that trims the capital gains tax discount, curbs negative gearing on established rental homes and has prompted at least one Sydney newspaper to put the label “tax haven” on New Zealand.
The Australian budget, delivered on 12 May, leaves the existing 50 percent capital gains tax discount in place for property and shares held for more than a year only until 1 July 2027. From that date the discount is replaced with a cost base indexation method plus a 30 percent minimum tax on the indexed gain. Pre-1985 assets, which had been permanently exempt, are also being brought into the net.
Negative gearing is being curtailed at the same time. Established residential investment property bought after 7.30pm on budget night can only have rental losses offset against rental income or capital gains from other residential property, not against salary and wages. Buyers of new builds will still be able to deduct losses against other income, a carve out designed to protect construction activity. The full budget factsheet sets out the transitional arrangements.
Within hours of the budget being released, The Australian had topped its front page with the suggestion that Canberra’s budget had increased New Zealand’s appeal as a tax haven, drawing commentary on both sides of the Tasman.
Speaking to RNZ, Simplicity chief economist Shamubeel Eaqub said the underlying calculus for would be entrepreneurs and investors had not actually changed all that much. “The first part hasn’t really changed, the main reason why people start up a business is because they want to make a successful business and the chances of creating a successful business are much higher in Australia than in New Zealand,” he said.
Westpac chief economist Kelly Eckhold told the same outlet that New Zealand still has what he called “relatively advantageous rules” for property investment, and Deloitte tax partner Robyn Walker noted that “in the aftermath of the Australian Budget there has definitely been a bit of a cheeky tax marketing narrative around the tax system being better in New Zealand.”
Infometrics chief forecaster Gareth Kiernan added that Australian investors would logically begin running the numbers on New Zealand property, given the absence of foreign buyer restrictions for Australian citizens under the trans Tasman arrangement and a relatively favourable cross rate.
The contrast between the two regimes is sharp. New Zealand still does not have a broad based capital gains tax. Residential property is caught only by the bright line test, which now sits at two years after the coalition government rolled the threshold back from the 10 year Labour era setting. There is no stamp duty on property purchases. There is no land tax. There is no inheritance tax. Rental losses have already been ringfenced to a landlord’s own residential portfolio since 2019, so the negative gearing change Australia is now phasing in has, in effect, already happened here.
For an Australian investor weighing a Sydney apartment against an Auckland or Tauranga rental, the after tax maths can look strikingly different. A 50 percent capital gains discount falling to a 30 percent minimum tax on indexed gains can lift the effective capital gains rate for a higher income Australian investor from around 23.5 percent to closer to 30 percent on a long held asset. In New Zealand the same property, held outside the bright line window and not bought with the intent to resell, attracts no capital gains tax at all.
The reaction in New Zealand has been mixed. Government ministers have pointed to the differential as evidence that the country remains an attractive place to invest, while opposition figures argue it simply underlines how lightly New Zealand taxes capital compared with most developed economies.
Property economists have warned that the inflows could be modest in practice. Most Australian property investors are leveraged retail buyers rather than institutional money, and exchange rate moves and unfamiliarity with the New Zealand market are still meaningful friction. Reserve Bank loan to value ratio rules also limit borrowing on investment property for buyers without strong local income.
Even a small lift in Australian demand could matter at the margin, however. Interest.co.nz reports more than 28,000 unsold residential properties on the market at the end of April, the largest April overhang since 2014, with sales typically softening further through winter. Any incremental buyer interest is being noticed by agents.
There is also a wider economic argument running underneath the headline. New Zealand has seen a steady drift of skilled workers across the Tasman in recent years chasing higher wages, and any sustained inflow of Australian investment capital, even if into housing rather than productive assets, would mark an unusual reversal. Eaqub and others have argued the more useful policy debate is not how to maintain the tax differential but how to lift wages and business returns to a level that gives New Zealanders the same reason to stay home.
The first practical effects of the Australian changes will not be felt until 1 July 2027, when the new capital gains regime kicks in. Until then, both sets of rules run in parallel, and Australian investors with appetite for property may use the window to lock in purchases under the more familiar arrangements before deciding whether to look offshore.
For New Zealanders, the broader question raised by the tax haven headline is the one that has been quietly building for years. Should a country with no capital gains tax, no stamp duty, no land tax and no inheritance tax continue to tax wages at up to 39 percent and GST at 15 percent. That debate, parked since the Tax Working Group reported in 2019, may now be reopening from an unexpected angle.
What do you think. Should New Zealand keep its current settings now that they are attracting cross Tasman attention, or is it time to look again at how capital is taxed here. Add your view in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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