Now, it could be the case that some property investors who improve and resell properties quickly are able to disguise normal income as capital gains by this mechanism, but I'd be surprised if the efficient solution were a broad capital gains tax rather than IRD just watching things a bit more closely.
From the National Business Review, we find that Reserve Bank Governor Bollard agrees.
“We’re particularly interested in the prospect of seeing a flattening of the tax incentive structure around housing investment.There is no need for a capital gains tax to remove purported distortions in the housing market. I can imagine a case for a move from an income tax to a land tax as efficiency-augmenting, but I have a hard time believing that such a move would be an equilibrium.
“It seems to me the most obvious part of that would be around taxation on people who intend to flick on investor housing.”
And, asked by Mr Cunliffe whether he believed the current tax system favours of property investment, Dr Bollard drew a big breath and said, “the short answer is yes.”
That though is somewhat short of calling for anything, let along a capital gains tax. As Dr Bollard well knows there are existing provisions in the income Tax Act which allow the Commissioner for Inland Revenue to treat the gains on the sale of property by people who are consistently buying and selling properties as income.
What it boils down to is determining those people are buying and selling property so frequently they are essentially traders, and any capital gain is treated as part of their income.