Property speculators warned to pay tax on profits

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Wednesday 31 March 2004

Aucklanders reaping rewards from the booming housing market have been warned against attempting to evade tax after a speculative property boom in Wanaka and Queenstown resulted in Inland Revenue sending four investigative units there.

By The Landlord

Institute of Chartered Accountants tax director Annabel Young said Auckland's property boom could also catch out people who were trying to sidestep tax rules.

Although New Zealand has no capital gains tax, people who buy and sell properties often, intending to make a profit, can be taxed and are sometimes liable to pay the top marginal tax rate of 39 per cent on the profit.

But IRD's South Island service centre manager, Carson McNeill, said the tax was particularly aimed at speculative property transactions.

IRD was also concerned about property companies established to minimise tax payments on deals and in some cases pay no tax, McNeill said.

"We have determined that certain business structures - principally companies - have been specifically formed to avoid tax in a way not intended by the law," he said.

This was achieved in the way those structures were established and how they bought and sold properties, particularly in relation to the timing of deals, the sourcing of deals and conditional arrangements entered into.

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