Surprise - capital gains on NZ property can be taxed

Monday 21 June 2004

In recent months newspapers have published several reports in respect of Inland Revenue targeting property transactions in Queenstown, Wanaka and Nelson.

By The Landlord

While New Zealand does not have a comprehensive capital gains tax, several provisions in the Income Tax Act can tax what owners might otherwise regard as capital gains. For these purposes, "land" includes buildings.

Based on recent reports, IRD appears to be focusing on sales of land that it believes were purchased with the intention of resale.

Intention is, of course, a very subjective concept and in many cases it may be possible to establish that the land was acquired with a purpose other than resale.

Even if land was acquired with the purpose of resale, certain exemptions may apply. For example, land acquired by the taxpayer primarily as a residence for the taxpayer and family or as substantial business premises may be exempt from some of the provisions (unless there is a pattern of such transactions).

Other provisions may tax a sale even if it is not acquired with the intention of resale. Special provisions can apply to land acquired by builders, dealers, developers, or people associated with them. Again sales may be exempt, if the land is used for farming activities – in some cases before the transaction and in other cases before and after the transaction.

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