Has Capital Gains Tax become law?

Question from Michael updated on 20th November 2008:

We are looking to buy our first home and we have been offered a good deal through a family member; the house we are currently renting is the house we are to purchase. However, the purchase price has now risen by $9000, apparently after he consulted with his accountant and was told that he would end up with a large tax bill and legal costs. I didn't think a capital tax gain law has been passed into law? Is this correct, will he get a large tax bill? The property GV is $269000, he has had the property for about 8 years now and he is selling to us for $209000, so I would think if anything he could write off his loss in his personal tax, not end up with a tax bill? Your clarification would be much appreciated.

Our expert responded:

You are correct, there is no capital gains tax in NZ.  Your family member's accountant is referring to the effect of depreciation recovered, and this only arises when an asset is sold.  When an asset is sold, the selling price is compared to the depreciated value of the asset.  If the selling price is less than the depreciated value of the asset, then there will be additional tax loss to claim.  However, if it's more (as is often the case with residential investment property), then that means too much depreciation has been claimed and it needs to, effectively, be paid back.  At the end of the day, you are getting the property at a discount, and I would be grateful for that.

Kenina Court is a director of Acorn Solutions Limited, an accounting firm dedicated to working with clients to help them create wealth.  She is an avid property investor, entrepreneur and seminar presenter on asset protection and wealth strategies.




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