Property problems: Intent determines taxes on property sale profits

Saturday 15 May 2004

Q. I have had a small property in Christchurch for four years. I lived in this property for the first 18 months, then let it through a rental agency while I travelled overseas. I sold the property in January. What taxes will I be liable for on the profit I made on the sale? How do I work out these taxes?

A. No part of the profit made on the sale of a rental property in

By The Landlord

these circumstances is necessarily subject to income tax.

Whether income tax is payable will depend on other facts surrounding your purchase and/or treatment of the property since you bought it.

If you bought the property intending to re-sell it, rather than hold long-term, income tax will be payable on the profit - generally the sale price less purchase price and costs of sale.

A sale four years after purchase does not necessarily indicate that you acquired the property for the purpose or intention of resale. But it is the intention or purpose at the time of acquisition which is relevant to this question and which may be disclosed in contemporary documents - such as bank records if you took out a loan to buy the property. Inland Revenue can gain access to such documents if it wishes to explore the background to a purchase in checking whether the profit is taxable.


Even if you bought the property other than with a resale in mind, the profit on the sale would nevertheless be subject to income tax if, at the time you acquired the property, you or an associated person carried on the business of dealing in land, a business of developing or dividing land into lots, or a business of erecting buildings.

Read More - Opens in a new window
Commenting is closed

Property News

Key reform will only protect bad tenants

Getting rid of “no cause” termination notices only serves to protect bad tenants and will have a negative impact on the broader community, not just landlords, according to landlord advocates.

House Prices

No stopping Capital price rises

There’s no sign of a slow-down in Wellington’s property prices with Trade Me Property’s latest data showing that asking prices continue to rise solidly.

Commercial

Demand challenges for commercial sector

Vacancy rates in the commercial property sector are set to increase as changing economic conditions dampen demand.

Mortgages

LVR loosening likely - ANZ

LVR restrictions were never meant to be a permanent feature of New Zealand’s housing market and ANZ economists argue that some further relaxing of them could soon be on the cards.

Site by PHP Developer