New Zealand taxes a number of types of capital gains as ordinary income at the standard income tax rates but it is an outlier within OECD countries for not having a separate comprehensive capital gains tax (CGT). Over the years, numerous proposals for a CGT have been made by political opposition parties as part of their policy platform; none of these parties have been successful in forming part of a government and, as such, their proposals have failed to come to fruition. The Tax Working Group in 2009 came very close to recommending a CGT for New Zealand as part of a portfolio of tax policy options. The bright-line test for the purchase and sale of residential property within two years of acquisition was introduced in 2015. The debate nevertheless continues over whether New Zealand should embrace a formal standalone CGT. This article reviews previous attempts at introducing a CGT into New Zealand, traverses the ongoing debate, and outlines some of the key policy choices that need to be carefully examined should a future government announce that it is working on a CGT. The analysis is undertaken within a comprehensive tax base framework which applies income tax to net economic gain, adjusted for inflation. The article then considers modifications to this 'ideal' framework based on the design principles of equity, efficiency, simplicity, sustainability and policy consistency. Given Australia has had a CGT regime in place since 1985, with the regime going through several amendments in the intervening years, much of this analysis is drawn from that experience. In particular, Australia's politically controversial grandfathering clause, indexation versus discount model, and exemptions and concessions are discussed. The article concludes by providing recommendations as to 'ideal' policy choices should a CGT be again promoted as tax policy in New Zealand.
