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🏠 Understanding Capital Gains Tax in NZ

New Zealand doesn't have a general capital gains tax (CGT), but capital gains ARE taxed in specific situations under income tax rules. The tax applies when you buy assets with the intention of resale, or when you sell property within the bright-line period.

Key Point: NZ taxes capital gains as ordinary income when you're in the business of trading, bought with intent to resell, or sell property within bright-line timeframes. Your marginal income tax rate (10.5% to 39%) applies to the gain, not a separate CGT rate.

When Capital Gains Are Taxed

1. Bright-Line Property Rule

Sell residential property within specific timeframes and profit is taxable:

Purchase Date Bright-Line Period Tax on Sale
Before 27 March 2021 5 years Taxable if sold within 5 years
27 March 2021 onwards 10 years Taxable if sold within 10 years
New build purchased after 27 March 2021 5 years Exemption for new builds

Main Home Exemption:

Your main residence is exempt from bright-line if you lived in it continuously for more than 50% of ownership period.

2. Intention Test

Profit taxable if purchased with intention to resell, regardless of timeframe.

Indicators of intention:

  • Multiple property purchases/sales
  • Short ownership period
  • Property improvements before sale
  • Financing structure (short-term bridging)
  • Pattern of trading behavior

3. Business or Trading

Regularly buying/selling assets (shares, property, crypto) = business income. All gains taxable.

4. Land Dealers and Developers

In the business of dealing/developing land = all profits taxable.

What's Generally NOT Taxed

Asset Tax Treatment
Main home (held >10 years + lived in >50%) Tax-free
Long-term share investments (not trading) Usually tax-free (unless FIF rules apply)
Personal use assets (car, furniture) Tax-free
Collectibles (art, antiques) Usually tax-free (unless trading)
KiwiSaver gains Taxed within fund (PIE rates)

CGT Calculation Example

Investment property sold within bright-line:

Purchase price: $600,000
Sale price: $780,000
Capital gain: $180,000
Your marginal tax rate: 33%
Tax on gain: $180,000 × 33%
Tax owed: $59,400

Deductible Costs:

Purchase price: $600,000
Legal fees (purchase): $2,000
Renovations: $40,000
Real estate commission: $18,000
Legal fees (sale): $2,000
Total cost base: $662,000
Sale price: $780,000
Taxable gain: $118,000
Tax at 33%: $38,940

Share Trading

When shares are taxable:

  • Day trading or frequent trading = business income
  • Bought with intention to sell short-term
  • Part of managed fund with turnover

Long-term buy-and-hold:

  • NZ shares: Usually tax-free on sale (dividends taxed)
  • Overseas shares: FIF rules may apply if >$50,000
💡 FIF vs CGT

Foreign Investment Fund (FIF) rules tax unrealized gains annually on overseas shares/funds >$50,000. This is different from CGT which taxes when you sell. See our FIF guide for details.

Cryptocurrency

IRD treats crypto as property:

  • Frequent trading: Business income, all gains taxable
  • Long-term investment: Gains potentially tax-free
  • Intention test applies: Did you buy to resell?
⚠️ Record Keeping Essential

Keep records for 7 years: purchase/sale contracts, dates, prices, improvements, expenses, intention at purchase. IRD can challenge tax-free treatment years later if you can't prove your case.

🔢 Calculating Capital Gains Tax

Example 1: Rental Property (Bright-Line)

Purchased: April 2022, Sold: March 2025 (within 10-year bright-line)

Purchase:

Property price: $550,000
Legal fees: $1,800
Total cost: $551,800

Ownership Improvements:

New kitchen: $25,000
Bathroom renovation: $15,000
Heat pump: $4,000
Total improvements: $44,000

Sale:

Sale price: $720,000
Real estate commission: $21,600
Legal fees: $2,000
Net sale proceeds: $696,400

Capital Gain Calculation:

Net sale proceeds: $696,400
Less: Original cost: $551,800
Less: Improvements: $44,000
Taxable capital gain: $100,600
Tax at 33% marginal rate: $33,198
Tax at 39% marginal rate: $39,234

Example 2: Share Portfolio Trading

Active share trader (business income):

Transaction Date Amount Gain/Loss
Buy Air NZ Jan 2024 $10,000 -
Sell Air NZ Mar 2024 $12,500 +$2,500
Buy Fletcher Apr 2024 $15,000 -
Sell Fletcher Jun 2024 $13,800 -$1,200
Buy Meridian Jul 2024 $20,000 -
Sell Meridian Sep 2024 $24,000 +$4,000

Annual Tax Calculation:

Total gains: $2,500 + $4,000 = $6,500
Total losses: $1,200
Net taxable income: $5,300
Tax at 33%: $1,749

Example 3: Main Home Partial Exemption

Owned 6 years, lived in for 4 years:

Purchase price: $450,000
Sale price: $650,000
Total gain: $200,000
Lived in: 4 years / 6 years = 66.7%
Exempt portion: $200,000 × 66.7% = $133,400
Taxable portion: $200,000 × 33.3% = $66,600
Tax at 33%: $21,978

Example 4: Cryptocurrency Trading

Frequent crypto trader:

Bought Bitcoin: $30,000 (Jan 2024)
Sold Bitcoin: $42,000 (Mar 2024)
Gain: $12,000
Bought Ethereum: $20,000 (Apr 2024)
Sold Ethereum: $18,500 (Jun 2024)
Loss: $1,500
Net taxable gain: $10,500
Tax at 33%: $3,465

Tax Planning Strategies

1. Timing of Sale

Sell in lower income year to reduce marginal rate:

$100,000 gain while earning $180,000 salary = 39% tax
$100,000 gain while earning $50,000 salary = 30% tax
Tax saving: $9,000

2. Use Available Losses

Property gain: $150,000
Share trading loss: $20,000
Net taxable: $130,000

3. Main Home Planning

Live in property >50% of ownership to maximize exemption.

4. Joint Ownership

Split gains between partners to utilize lower tax brackets.

🌍 Real-World CGT Scenarios

1
Property Investor Multiple Sales

Investor with 3 properties sold in one year

Sales:

Property Purchase Sale Gain Status
A $400K (2020) $520K (2024) $120K Within bright-line
B $550K (2022) $680K (2024) $130K Within bright-line
C $320K (2010) $480K (2024) $160K Outside bright-line

Tax Calculation:

Property A gain: $120,000 (taxable)
Property B gain: $130,000 (taxable)
Property C: $160,000 (tax-free, held >10 years)
Total taxable: $250,000
Tax at 39%: $97,500

IRD concern: Multiple sales may indicate trading activity. Property C could be challenged as taxable despite being outside bright-line due to pattern of behavior.

2
Accidental Developer

Bought land, subdivided, sold sections

Transaction:

Purchased large section: $800,000 (2021)
Subdivision costs: $150,000
Total cost: $950,000
Sold 3 sections (2024):
Section 1: $450,000
Section 2: $480,000
Section 3: $520,000
Total: $1,450,000

Tax Outcome:

Total gain: $500,000
IRD view: Land development = taxable
Tax at 39%: $195,000

Key lesson: Subdividing land is generally treated as development activity, making all profits taxable regardless of bright-line or intention.

3
Day Trader vs Long-Term Investor

Two people, same shares, different tax outcomes

Person A (Day Trader):

Bought/sold NZ shares 50 times in year
Net profit: $45,000
IRD view: Trading = business income
Tax at 33%: $14,850

Person B (Long-Term):

Bought NZ shares in 2015
Sold in 2024, profit: $45,000
IRD view: Investment, not trading
Tax: $0 (NZ shares, long-term)

Difference: Frequency and intention matter. Same dollar gain, vastly different tax.

4
Family Home Exception

Couple's main home within bright-line

Scenario:

Bought: $650,000 (March 2022)
Sold: $850,000 (March 2026, 4 years)
Gain: $200,000
Within 10-year bright-line

Tax Analysis:

Lived in as main home: 100% of ownership
Main home exemption applies
Tax: $0

If They Rented It Out:

Lived in: 2 years, Rented: 2 years
Main home for 50% of ownership
Exempt: $100,000, Taxable: $100,000
Tax at 33%: $33,000

🎯 Test Your Knowledge

Complete this quiz on Capital Gains Tax

1. NZ's bright-line test for property purchased after March 2021 is:
2 years
5 years
10 years
15 years
2. Capital gains in NZ are taxed at:
Flat 15% rate
Flat 28% rate
Your marginal income tax rate (10.5%-39%)
Flat 33% rate
3. Your main home is exempt from bright-line tax if:
You own it for any period
You lived in it for more than 50% of ownership
It's your only property
You never rented it
4. Property bought for $500K, sold for $700K within bright-line. Tax at 33% is:
$231,000
$99,000
$66,000
$33,000
5. Which cost can you deduct when calculating capital gain?
Mortgage interest paid
Rental income received
Real estate commission on sale
Property insurance
6. NZ shares held long-term (not trading) are generally:
Taxed at 28%
Tax-free on sale (dividends are taxed)
Taxed at 15%
Subject to FIF rules
7. The "intention test" means:
You must declare your intentions to IRD
Profit is taxable if you bought with intent to resell
You can choose whether to pay tax
Only applies to businesses
8. Subdividing land and selling sections is generally:
Always tax-free
Tax-free if outside bright-line
Treated as development activity (taxable)
Taxed at special rate
9. Cryptocurrency gains are:
Always tax-free
Always taxable
Taxable if frequent trading or bought to resell
Taxed at flat 15%
10. Records for property transactions should be kept for:
2 years
4 years
7 years
Forever

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