Boosting IRD resources to enforce property taxes a possibility - English

Speaking to media this morning, English said the voice of the public in two elections – along with two official tax reviews – effectively ruled out introducing a capital gains tax.

He said there was no public support for it and both the tax reviews had concluded that, on balance, it wouldn’t make much difference.

However, English said there was ongoing discussion about whether the IRD should be given additional resources to investigate property speculation and trading more comprehensively.

"I think everyone - real estate agents, buyers - are pointing to higher levels of trading activity in Auckland and so there is a question of whether that should give rise to further enforcement activity.

“The focus is on what resources they might need for further enforcement of existing law and that will be a matter discussed in the context of the budget.”

Contrary to popular perception, New Zealand’s tax framework already includes a tax on people who buy properties with the intention of reselling for profit.

This includes people who buy properties to renovate and resell.

An Inland Revenue Department spokesman told landlords.co.nz that a major focus of the Property Compliance Programme (PCP) was ensuring that people speculating or trading in residential property are meeting their taxation obligations.

He said this included everything from one off speculative transactions to those developing a pattern of dealing.

Therefore the PCP investigates property development/speculation; residential investments that cross into property dealing; off-the-plan sales and land banking. 

However, the IRD spokesman said he would discourage the use of the term “investor” in this context.

“An investor in property implies long-term rental investors, who are interested in rental yields from property*. The PCP is interested in property dealers, speculators and traders, commonly referred to – but incorrectly – as property investors.”

In 2014, approximately $52.4 million of discrepancies were assessed by the PCP and IRD is now tracking to slightly exceed the 2015 target with $56.6M in additional tax assessed to date. 

The IRD spokesman also told landlords.co.nz that, although a national focus on property trading and speculation was maintained, natural hotspots of activity – like Auckland and areas of the South Island – do generate a more intense focus.

He added that resourcing has been relatively static in recent years, but that the IRD could not comment on budget matters.

*It is worth noting that rental investors are not exempt from taxation. They must pay tax [although not GST] on rental income they earn from their properties.