Capital gains tax on rentals?

Question from Ivan updated on 20th August 2014:

Stephen Tsang's column in New Zealand Property Investor magazine in April 2014 was entitled "ready, set, sell". In it, he says "While the vendors are revelling on the tax-free capital gain...".  While there is currently no capital gains tax as such, my understanding was that profits made on the sale of a rental property had to be declared as income in the year it was sold? Is this correct or not? Or does this only apply if one is deemed to be a property trader?

Our expert Mark Withers responded:

There is currently no capital gains tax in NZ, although voters should be aware it is labour policy to introduce one. Despite this, the income tax act contains a variety of taxing provisions that can tax gains where property is purchased with an intent to onsell or where the taxpayer is in the business of dealing in land, developing land, or erecting buildings. Gains from subdividing land can also be taxable in certain circumstances. The taxing provisions extend to tax gains derived by people or entities associated with people engaged in taxable land activities also. That said, where a property investor has acquired a property for rental purpose free of any intention to onsell it and free of any association to a developer, dealer or builder, gains eventually realised on sale are tax free. It’s worth noting though that if gains are made historical claims for depreciation will still be clawed back and taxed as depreciation recoveries.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

Search the Ask an Expert archive

Browse all questions in the Ask An Expert Archive »

Site by PHP Developer