The taxation of capital gains remains a highly contested issue in New Zealand.

Required:

a) Some policy experts argue that introducing a CGT would help improve fairness in the New Zealand tax system. Briefly explain the rationale behind this argument.

b) Many New Zealanders believe that the tax system in New Zealand does not incorporate any form of taxation on capital gains. Indeed, in April 2019, Prime Minister Jacinda Ardern commented under my leadership, we will no longer campaign for, or implement a capital gains tax.

Explain whether or not this assumption about CGT in New Zealand (i.e. that New Zealand does not tax capital gains) is correct. Use examples from the personal property sales provisions (ss CB 3 CB 5) and land sales provisions (ss CB 6 CB 14) of the Income Tax Act 2007 to support your answer.

c) In March 2021, the Government announced some major policy changes with respect to residential property, including that interest on money borrowed to invest in residential rental properties (excluding new builds) will not be deductible for tax purposes from 1 October 2021.

Evaluate the interest deductibility restriction against the following Tax Working Group (TWG) principles:

1. Efficiency
2. Equity and fairness
3. Compliance and administration