(Adds details, comments from group chairman and finance minister)
By Praveen Menon
WELLINGTON, Feb 21 (Reuters) - New Zealand's Tax Working Group on Thursday recommended that the government begin taxing capital gains income, a politically divisive policy that critics say could deter investors, especially in New Zealand's lucrative property market.
The suggested capital gains tax covers assets like residential rental properties, land and buildings, business assets, intangible property and shares.
The recommendations were published in a highly anticipated report, which will now be considered by Prime Minister Jacinda Ardern's coalition government.
New Zealand does not generally tax income in the form of capital gains, except in some specified instances, the report said.
The advisory group recommended that a tax on capital gains should kick in when an asset is sold or changes hands and would be applied with no discounted tax rate and no allowance for inflation.
Family homes, cars, boats, household items and art would be excluded from the tax, it said in the report.
"The government doesn't necessarily need to make a straight call over whether or not to adopt the group's preferred model for taxing more capital gains," chairman Sir Michael Cullen said in a statement.
"It could choose to apply it to only some types of assets or stagger the inclusion of different assets over time."
The debate over a new tax has been raging for weeks, with government critics and some property experts warning that a capital gains tax could hurt the housing market by compelling some investors to sell to avoid the tax.
The advisory group estimated that broadly taxing more income from capital gains will raise roughly NZ$8 billion over the first five years.
Finance Minister Grant Robertson said the government would take a "measured response" to the report.
"The independent report finds that overall our tax system is clear and simple but there is room for improvement. There is some unfairness that we need to address," Robertson said.
He said the findings showed there was no need for a major overhaul of the system, and added it was highly unlikely all recommendations will need to be implemented.
The government's plan and full response will be released in April, with no policy changes likely until April 2021, giving New Zealanders the chance to vote on any decision made by the government in next year's election.
Ardern came to power in 2017 promising to pour money into social services and rein in economic inequality. Her government has lifted minimum wages and boosted benefits for poor families but business confidence in her government has been sinking.