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Capital-gains tax is back on the political and media agenda. But Aurellan Asset Management co-founder, Anthony Edmonds, argues the IRD already has the teeth to chomp down on CGT, if not yet the intention to bite… Here’s a little-known fact: dead sharks bite. I saw the fact come to life in the pre-AI days of YouTube in a clip featuring a seasoned fisherman celebrating his catch with a classic Jaws photo opportunity that ended with a shock attack and a bloodied arm. Clearly, he hadn’t read Eugene Kaplan’s Field Guide to Coral Reefs, which cautions against putting your hand in the mouth of a dead shark as it can, but not always, trigger a reflex biting action. Here’s another little-known fact: NZ already has a capital gains tax (CGT) regime. But watching the frenzied debate raging after Labour waded back into the water with its new CGT policy this October brought back fond memories of that old YouTube video as politicians of all species posed selfie-style inside the jaws of a previously deceased tax monster. Clearly, our politicians haven’t read the Income Tax Act 2007 that explicitly states tax is payable on all income including investments made with the ‘intention’ of making a capital gain. Presumed-dead tax rules can still bite, even if – like the dead shark – it’s not always easy to know when the teeth will clamp shut. The ‘intent’ rule has long been the subject of complicated legal arguments, multiple court cases and erratic enforcement. However, the complexity lies not in the rule per se but in how intent is interpreted by the Inland Revenue Department (IRD). The IRD has periodically drawn lines in the sand over the application of intent to certain assets, deeming capital-gains as the only possible reason for investing in cryptocurrencies and gold, for instance, probably due to the lack of associated income or dividends. Under formal IRD guidance, all crypto and precious metal gains are subject to income tax at the investor’s marginal rate. Before the introduction of Portfolio Investment Entity (PIE) regime in 2007, the same reasoning applied to NZ share funds: since they were in the business of investing in shares, the IRD said the intent must have been to profit from capital gains. When the PIE regime was enacted the government explicitly exempted NZ share PIE funds from CGT to give investors — particularly in KiwiSaver — certainty of this tax treatment. The exemption itself provides strong evidence that NZ has long operated under a de facto CGT framework. By contrast, individual investors in NZ equities have no formal carve-out from the intent-based CGT obligation, remaining subject to the enforcement whims of the IRD. While the IRD has recently warned individual NZ share investors about the dangers of stepping over the intent-line, it has done very little biting to date. Possibly, those individuals holding direct NZ equities are relying on the argument that their intent is to earn dividends rather than capital-gains. On closer examination, though, the dividend argument might not hold water. The wider NZ share market, as represented by the S&P/NZX 50 Index, has a weighted average dividend yield around 3 per cent (as at 30 September 2025) and some stocks, much like bitcoin and gold, do not pay a dividend at all. Given the risks associated with investing in NZ shares it would be impossible to justify why any rational person would invest in shares unless they expected to get a materially higher return than just the dividend yield. The only other source of returns is capital-gains. Based on this fact, the IRD could take the position that all individuals holding direct NZ equities have invested with the intent of making capital-gains and should be taxed accordingly. Yet the IRD has tended to take a more lenient view. That leniency is not guaranteed. More recently, the IRD has tasted considerable success after adopting a hard line on collecting tax arrears with media reporting the process yielded $12 for every $1 spent on the chase. Undoubtedly, a tougher stance on taxing individuals who have banked capital-gains from NZ share-trading, or the like, would pull in substantial revenue for the government. Local investors in bitcoin and gold will be able to attest to the fact that the IRD is quite capable of imposing its own view on the intent of owning certain assets – and very efficient in identifying and collecting tax due from such individuals. And just as per bitcoin and gold, the IRD has a clear line-of-sight into the direct NZ share-holdings of individual investors through information hosted on the administration platforms used by wealth advisers, online share platforms and in the registry systems of our listed companies. Investors in PIE funds can take comfort in knowing their capital gains on NZ equities remain tax-free but those holding local shares directly are needlessly testing the dead-shark reflexes of the IRD that might – at any moment – clamp its teeth with intent. Given any government already has the tools to enforce a CGT on multiple assets, it’s difficult to see the merit of Labour stirring up the media waters again with the burley of a limited, property-based tax. Essentially, the proposal is just a set of rules based around a ‘fact pattern’ that ascribes a primary intent of making capital-gains for multiple-property owners. Labour tried this before with its 10-year ‘bright-line’ test that the current government has now reduced to a two-year property ownership threshold before a CGT applies. Instead of mouthing-off in public about introducing a complicated, narrow CGT legislation, politicians might make more of an impact by chewing the ears of the IRD management team to sharpen-up the existing intent-based tax enforcement. The real fact about capital gains is that, policy-wise, the ‘dead’ shark still has plenty of teeth and a mouthful of hands: it just hasn’t bitten… yet.
