Labour’s 2026 Capital Gains Tax Proposal: What Property Owners and Investors Need to Know
Ross Holmes Virtual Lawyers Limited — Property & Tax Insights
With the 2026 General Election now firmly on the horizon, the New Zealand Labour Party has confirmed that the centrepiece of its tax platform will be a targeted capital gains tax (CGT) on investment and commercial property. For our clients — property investors, business owners, family trusts and developers — the proposal raises a number of practical questions. This article sets out what Labour has actually announced, what remains unclear, and what you may wish to think about now.
The headline policy
Labour proposes a flat 28% capital gains tax on profits made from selling commercial property and residential investment property, applying only to gains accruing after 1 July 2027.
The 28% rate is deliberately aligned with the company tax rate, so that property profits are taxed in the same way as other business income. The tax is realisation-based — it is only triggered on sale, not annually.
Labour has been emphatic that nine out of ten New Zealanders will not pay the tax, and every dollar of revenue raised will be ring-fenced for health, including three free GP visits per year for every New Zealander, delivered through a proposed “Medicard” scheme.
What is in, what is out
Inside the net:
Residential investment property (rentals, holiday homes, baches that are not the family home)
Commercial property
Outside the net (exempt):
The family home, including lifestyle blocks
Farms
KiwiSaver
Shares
Business assets (other than the property itself)
Inheritances and gifts
Personal items — cars, boats, art, furniture
Small businesses selling their premises in order to buy larger premises
How the calculation works
The tax applies only to gains made after 1 July 2027. Not a single dollar of pre-1 July 2027 gain is taxed.
Labour’s worked example: a commercial building purchased on 1 July 2025 for $400,000, valued at $600,000 on 1 July 2027, and later sold for $700,000. Tax applies only to the $100,000 gain accruing after the valuation date.
For owners holding property at 1 July 2027, this means a valuation at that date will be critical. The gap between that valuation and your eventual sale price (less allowable capital expenditure incurred during ownership) is what becomes taxable.
Losses appear to be ring-fenced — that is, a loss on one property cannot be set off against ordinary income, but can be carried forward against future capital gains on housing.
What Labour has not said: interest deductibility
This is the question on the lips of every residential rental owner, and one that Labour’s policy document does not answer.
In 2021, the previous Labour government phased out the deductibility of interest on loans used to acquire residential rental property. The current National-led coalition has fully reversed that change, with 100% interest deductibility restored from 1 April 2025.
Labour’s 2026 tax announcement is silent on whether it intends to remove interest deductibility again if it returns to government. Commentary across the property sector — including from the New Zealand Property Investors Federation — has noted that Labour has neither confirmed nor ruled out reinstating the earlier restrictions. In our view, this is a significant gap. A future government that combined a CGT with the removal of interest deductibility would deliver a meaningfully heavier tax burden on residential investors than the headline 28% rate alone suggests.
We will be watching closely as Labour’s broader policy platform is finalised in the lead-up to the election.
Other points worth noting
No inflation adjustment. The proposed CGT taxes nominal gains, not real gains. In a low-growth, high-inflation environment, an investor can show a nominal “gain” while suffering a real loss in purchasing-power terms — and still be taxed on it.
Bright-line interaction. The current bright-line test (two years for most residential property) is likely to be displaced by, or absorbed into, the new regime. Labour has not yet detailed how the transition will work.
Trusts and entities. The policy document is light on detail about how the tax will apply to property held in trusts, look-through companies, or other structures, and on the rules for related-party transfers. These details will matter enormously in practice.
The family home definition. Labour has stated the family home (including lifestyle blocks) is exempt, but the precise boundary — particularly for properties with mixed use, multiple dwellings, or extended absences — has not yet been spelled out.
What this means for you — practical considerations
We are not yet at the point of reorganising affairs around a policy that may or may not become law. Labour must first win the election, and any legislation will then have to pass — possibly with amendments demanded by coalition partners. That said, prudent owners should be:
Keeping good records. If a CGT is enacted, capital expenditure incurred during ownership reduces the taxable gain. Receipts and contemporaneous records of improvements will become directly tax-relevant.
Thinking about valuations. A defensible valuation at 1 July 2027 will be critical for any property held at that date. Owners should consider how they will document value on that day.
Watching the interest deductibility question. If Labour signals an intention to remove interest deductibility on residential investment loans, the calculus for residential investors changes materially.
Our view
Labour’s proposal is a deliberately narrow CGT. It does not extend to shares, businesses, KiwiSaver, farms or the family home. That makes it considerably less far-reaching than the comprehensive CGT recommended by the 2019 Tax Working Group.
However, the policy is not without complexity. Valuation, structure, treatment of losses, mixed-use property, and the open question of interest deductibility can produce very different outcomes for different owners. Whether the policy is ultimately enacted in its current form or not, the direction of travel is clear: property — particularly residential investment property — will continue to be a focus of tax policy debate in New Zealand for the foreseeable future.
If you would like to discuss how the proposed regime might affect your property holdings, trust arrangements or business structure, please get in touch.
Ross Holmes Virtual Lawyers Limited provides legal advice on property, trusts, tax structures and commercial law. This article is general commentary, current as at the date of publication, and does not constitute legal or tax advice. Please obtain advice tailored to your circumstances before acting.
