Property

Shock awaits for tax avoiders

Non-compliance with the bright line test has been high but people shouldn’t take that to mean they can get away with not paying the tax involved.

Friday, March 09th 2018

Introduced by the previous government, the bright line test requires income tax to be paid on any gains from residential property sold within two years of acquisition, with some exceptions.

In a bid to dampen property speculation, the government recently introduced legislation into Parliament which aims to extend the bright line test from two years to five.

But a joint IRD-Treasury impact assessment on the government’s proposal has revealed that voluntary taxpayer compliance with the existing bright line rules appears to be less than 50%.

Further, the impact assessment says that non-compliance will continue to be an issue and is identified as an implementation risk if the bright line test is extended over a longer period.

Tax specialist Terry Baucher says the high level of non-compliance with the bright line test is no surprise.

Not only do the rules of the bright line test have many grey areas but, in the absence of a formal capital gains tax, most people will push the boundaries of intent, he says.

“People do try to get away with not paying the tax on properties bought and sold within two years.

“For most people, their default position will simply be that they didn’t plan to sell the property when they bought it so they don’t owe the tax.”

But, in Baucher’s view, people are unwise to underestimate the investigation capabilities of the IRD - which has a dedicated Property Compliance Programme.

“The IRD has extensive powers to investigate and to gather information on the activities of taxpayers when it comes to property,” he says.

“Additionally, there are some residential areas, like Botany and Flatbush in Auckland, where it keeps a close eye on all sales activity due to concern over the nature of that activity.”

In recent times, the IRD had been going through a major restructure which has involved significant cuts to its workforce.

Baucher says this will have impacted on their activities and may have led them to take their eye off the ball a bit in some areas.

“But when they get back on top of the game, that bright line test compliance rate is likely to increase and people who think they have got away with avoiding it are likely to be in for a nasty shock.”

In the impact assessment, it says that the IRD is following up on cases of apparent non-compliance with the bright line test rules.

It also says the IRD is considering changes to existing processes that could drive up voluntary compliance, although it doesn’t specify what they might be.

An IRD spokesperson says they go to significant lengths to help taxpayers meet their tax obligations.

“New Zealanders can be confident we will take every action against those who deliberately cheat the tax system.”

Read more:

Extension to bright line test on the way 

Don’t under estimate the IRD 

Comments

No comments yet

Heartland Bank - Online 6.69
SBS FirstHome Combo 6.74
Wairarapa Building Society 6.95
Unity 6.99
Co-operative Bank - First Home Special 7.04
ICBC 7.05
China Construction Bank 7.09
BNZ - Classic 7.24
ASB Bank 7.24
ANZ Special 7.24
TSB Special 7.24
Unity First Home Buyer special 6.45
Heartland Bank - Online 6.45
China Construction Bank 6.75
TSB Special 6.75
ICBC 6.75
ANZ Special 6.79
ASB Bank 6.79
AIA - Go Home Loans 6.79
Kiwibank Special 6.79
BNZ - Classic 6.79
Unity 6.79
Westpac Special 6.39
China Construction Bank 6.40
ICBC 6.49
SBS Bank Special 6.55
Kiwibank Special 6.55
BNZ - Classic 6.55
Co-operative Bank - Owner Occ 6.55
ASB Bank 6.55
AIA - Go Home Loans 6.55
TSB Special 6.59
Kainga Ora 6.99
SBS FirstHome Combo 6.19
AIA - Back My Build 6.19
ANZ Blueprint to Build 7.39
Credit Union Auckland 7.70
ICBC 7.85
Heartland Bank - Online 7.99
Pepper Money Essential 8.29
Co-operative Bank - Owner Occ 8.40
Co-operative Bank - Standard 8.40
First Credit Union Standard 8.50
Kiwibank 8.50

More Stories

Support for regulation

Monday, March 18th 2024

Support for regulation

REINZ has emphasised the need for property management regulation to Parliament’s Social Services and Community Committee.

A better investment market

Thursday, March 14th 2024

A better investment market

“Reinstatement of interest deductibility starting from the new tax year on 1 April brings property investors back in line with every other business in the country, where interest costs are a legitimate deductible expense," Tim Horsbrugh, New Zealand Property Investors Federation (NZPIF) executive committee member says.

[OPINION] Recessionary times

Thursday, March 14th 2024

[OPINION] Recessionary times

It is not the best out there for many businesses and property sector people. Sales are down across the board, our clients’ confidence is falling, and there is a lot of uncertainty.

Interest rate expectations: It’s not over yet

Thursday, March 07th 2024

Interest rate expectations: It’s not over yet

Most Kiwis think interest rate increases have peaked.