If we build & sell, what CGT am I liable for?

Question from Dave Wolfe updated on 6th December 2007:

Hi, After renting for a year,and have just built a house.(currently occupied for 6 months). We intend to sell and move. We have purchased 2 sections to build on. The first section is due for title soon and the second in a years times. If we build the next home and do the same the next year what are our problems with capital gains tax.

Our expert responded:

The answer to your question depends solely on your intentions for the property and the regularity with which it's done. If you are doing this because you are building your family home, and you are doing it in your personal names, then there should be no capital gains tax payable. This is particularly so if there is a strong reason for you to sell the property once built, such as you can not afford to pay the mortgage. However, if IRD believe you are building to sell (and especially if you are doing this through a tax entity), then you are conducting a taxable activity, and you will have pay tax on any profits you make from building and selling. If you argue that you are building your family home, then IRD will look at the regularity with which this is or has been done (considering that the average length of time people own a home is seven years), and if you have done a number of these over a small number of years, then IRD may feel otherwise and still impose income tax on you for any gains/profits made.

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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