ACT petitions to scrap 'ineffective' bright-line test, following Govt's housing package

March 24, 2021
The ACT leader says "the real injustice" is that firearms are now being taken off law abiding citizens.

ACT leader David Seymour is launching a petition to scrap the bright-line test designed to tax the income made when selling a house under certain circumstances.

It comes in response to the Government’s wide-ranging housing package announced yesterday, which aimed to cool the red-hot property market. 

As part of the package, the bright-line test was extended from five years to ten. That means if a house is sold within a decade of someone purchasing it, a person would have to pay income tax on any gains made. It does not apply to the family home. 

Seymour’s petition today also called for the reintroduction of mortgage interest deductibility. 

Among the wide-ranging changes announced yesterday, an interest deductibility loophole was removed. This means property investors can’t offset the cost of the mortgage interest they pay against their rental income when calculating their tax. 

Seymour said it was people’s “right” to claim the interest deductions.

“This change will have the perverse effect of forcing those landlords who decide to wear the change and hold on to their properties to drive up rents. That will in turn make it harder for many people to save for a deposit on their own first home,” he said. 

“Neither is fair, neither addresses the supply problem that causes house price inflation.

“These tax changes are not only nasty and divisive, they’re totally ineffective. No country has ever taxed its way to affordable housing.”

Seymour said the extension of the bright-line tests was a “capital gains tax by stealth”, something Jacinda Ardern had ruled out so long as she was Prime Minister.

"You either favour a capital gains tax or you eradicate the so-called bright-line test. It is time all political parties told the truth, the bright-line test has been a dishonest misadventure that punishes the hard working," he said.

Clark is hopeful it will make a difference, while Sir Key says it’s a “complex issue”.

“When National introduced the original two-year bright-line test I said ‘… this tax is the acorn of a capital gains tax. It is a measure that will grow from two years to five to 10 to 15 years' ... I was spot on.

"Application of the law that existed before 2015 would have seen tax paid on income from property speculation. The bright-line test was unnecessary but has been allowed to grow into something the then Government never claimed it would become.”

He said the Government should turn to long-term measures, like making planning, zoning and building infrastructure easier. 

But others said the changes to the bright-line test and removing mortgage interest deductibility could help first-home buyers. 

“In theory they’ll [first-home buyers] be able to go into auctions and tenders without quite so many rental property investors competing against them,” economic and political commentator Bernard Hickey told Breakfast.

But, he added, only time would tell if the new rules would do enough to “turn off those landlords”. 

Meanwhile, Finance Minister Grant Robertson said solving the lack of housing supply was a “collective issue”, and some solutions to this were “built in” to yesterday’s package. 

Grant Robertson says the housing package will create long-term solutions.

For example, with the extension of the bright-line test to ten years and the removal of an interest deductibility loophole , investors would be incentivised to build new houses because these only applied to existing stock, he said.

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