17,000 lifestyle blocks in Hawkes Bay could attract CGT

Cartoon credit: SonovaMin

The unintended consequences of the TWG’s report keep rolling in. In an effort to maximise the tax grab, the report recommends exempting the family home, but only if it stands on a pocket handkerchief of land. Any family home that stands on more than 4,500 square metres of land will not be exempt from the tax. In the Hawkes Bay alone, that means over 17,000 family homes will attract CGT on sale.

4,500 square metres may sound like a lot, but it equates to approximately half a rugby field. You may think that is plenty, but if you have always lived in a rural area, it is normal to have a property with a few acres of land. Now such landowners are ‘rich pricks’, even though the property they own may be worth only a few hundred thousand dollars. Never fear though; the million dollar apartments in central Auckland and the $2.5 million mansions in Herne Bay are protected from the tax. They are family homes, you know. quote.

National Party leader Simon Bridges says more than 17,000 lifestyle blocks in Hawke’s Bay could be affected by a proposed capital gains tax.

While the Tax Working Group has recommended an exemption to the family home when it comes to a capital gains tax, lifestyle blocks over 4500 square metres would not be exempt.
“The reality is, that’s a little over half a rugby field,” Bridges said. “There are 17,657 properties in Hawke’s Bay alone which fit into that category. end quote.

Let’s face it, this is not just about Hawkes Bay. What about Wairarapa, Manawatu, King Country, Waikato, Bay of Plenty, Northland, Tasman, West Coast, Central Otago…. we are talking a lot more than 17,000 family homes in total; all caught in the CGT net. quote.

He said multimillion-dollar properties in the Auckland suburb of Remuera, or Wellington’s Oriental Bay, would be exempt from a capital gains tax.

“But those in the Hawke’s Bay with a few sheep and some cows will be hit. Labour claims this is about fairness, but how’s that fair?”

end quote.

Lifestyle blocks are not always worth a lot of money; it depends on the location. In some of the remote areas, owning a few acres of land is quite inexpensive and, while it is a lifestyle choice, it is still the family home. If a lifestyle block is a holiday home, it is caught by the tax already. quote.

The recommendation to not exempt properties over 4500 square metres is based on existing laws around what is considered a “main home” when selling properties under the brightline test, a tax introduced by National in 2015.

A Newspaper. end quote.

The rule around 4,500 square metres was to establish an ‘economic unit’ for tax and GST purposes, and has nothing to do with CGT. If a block is less than 4,500 square metres, it cannot be considered to be an economic unit. The TWG had no reason to apply this particular threshold to the definition of a lifestyle block, and could have made it, say, 10 acres (40,569 sq m), which would have been a more reasonable threshold.

This provision is clearly intended to exempt as few family homes from the tax as possible, but if fairness is the supposed object of this exercise, no one can say that taxing lifestyle blocks that are also family homes is fair in any way.