Is your home CGT safe?

The Tax Working Group has ditched the idea of placing a $5 million cap on the value of ‘‘family homes’’ that could be excluded from capital gains tax.

Finance Minister Grant Robertson repeated yesterday that the ‘‘family home’’ would be safe from any capital gains tax (CGT) the Government introduced.

While that may be the ‘‘short answer’’, working group chairman Sir Michael Cullen noted that the ‘‘long answer’’ as to what might constitute a family home for tax purposes consumed a full six pages of the working group’s final report.

Some small business owners, unhappy at the idea of a capital gains tax, have suggested that they might shut shop and pour all their wealth into palatial mansions, if the tax comes in.

In its interim report published in September, the working group suggested capping the family home tax exemption so it only applied in full to properties worth up to $5m.

People who spent $7.5m on their home would pay tax on a third of any gain they made when they sold it, the working group had suggested.

But in its final report, the working group said imposing such a restriction was ‘‘outside its terms of reference’’, while suggesting it was still something that should be considered by the Government.

However, the Tax Working Group is still proposing that no more than 4500 square metres of land on which a family home was built should be excluded from tax on its capital gain.

That is intended to ensure people who live on lifestyle properties would enjoy the exclusion but to stop people with a home on a farm from claiming their entire property fell under the ‘‘family home’’ exemption.

Another key rule would be that an individual (or a couple if they were in a relationship) could usually only have one ‘‘family home’’ between them.

The working group said that in ‘‘rare situations’’ it might be allowable for a couple in a relationship but living separately to each have a home that qualified for an exemption.

But such ‘‘long distance’’ relationships could only confer a double tax break for a maximum of three years.

Also, in the not uncommon situation where people ended up buying or building a new home before managing to sell their old one, there could be a period of up to a year when capital gains tax would not apply to either.

Only people who were tax resident in New Zealand would qualify for any family home tax exemption. So wealthy Americans, such as United States investor Peter Thiel, would be out of luck claiming an exemption on any capital gain on their Queenstown bolt holes.

The rules get more complicated for people who work from a home office.

They would be able to claim an exemption on any gain in the value of that home, like other home owners.

But they would then no longer be allowed to deduct any costs related to their property, such as rates or mortgage payments, from their taxable income.

Or they could choose to keep those deductions, but pay tax on any capital gain on the proportion of the home that they used for business, when

they sold it.