Taxing Capital Gains: A Comparative Analysis and Lessons for New Zealand

Abstract

New Zealand is currently the only member country of the Organisation for Economic Co-operation and Development (OECD) without a formal, comprehensive regime in place for taxing the capital gains made by its personal and corporate residents. Being the outlier is insufficient justification for introducing a capital gains tax (CGT) in New Zealand, but it does raise issues — relevant to the current debate as to whether a CGT should be introduced — about how this position has arisen and whether it needs to be addressed. This article explores the trends in taxation of capital gains around the world and identifies the reasons that CGT has been — after the ubiquitous value-added taxes — the most widely introduced tax in recent decades. Most importantly, it considers the question of whether New Zealand actually needs a CGT and examines world’s best practice, which might help to shape the design of such a tax in New Zealand if it is concluded that a CGT is required.