SearchProperty trading tax?
Megan asks:
(updated on Wednesday, July 23rd 2014)
I am interested in buying, renovating and selling residential property for profit? I would expect to complete two to three properties per year. Can you please advise if it is correct that the rate of property speculation tax for a property acquired and disposed of within six months is 90% of the profit? If this is the case, it seems extremely high. Would it be best to have the renovations running as a business and would I then only be required to pay tax on the profit of the business as a whole at the business tax rate of 28%? Rather than paying property speculation tax on the profit of the individual property sale?
Our Experts Answer:
Dear Megan thankfully, that is incorrect. Gains from taxable land transactions are taxable under the income tax act. The tax rates applied are in accordance with normal income tax rates. For trusts and individuals with incomes in excess of $70,000 the tax rate is 33%. Companies are taxed at 28% but when they distribute profits as dividends, a 5% top up is often required to get to the shareholder rate of 33%. Bear in mind also that the activity will require GST registration when it is continuous and regular. This means 15% is payable on sales but claimable on costs. The income tax is calculated on the profit net of GST. It is quite common for active property traders and developers to use companies but all the structuring options should be explored with your advisors to select the one that is most suitable for your circumstances.
Most Read
| Unity First Home Buyer special | 3.99 |
| SBS FirstHome Combo | 3.99 |
| TSB Special | 4.39 |
| Co-operative Bank - First Home Special | 4.39 |
| ICBC | 4.39 |
| SBS Bank Special | 4.49 |
| Unity Special | 4.49 |
| ANZ Special | 4.49 |
| Westpac Special | 4.49 |
| Kiwibank Special | 4.49 |
| Co-operative Bank - Owner Occ | 4.49 |
| ICBC | 4.59 |
| ANZ Special | 4.69 |
| TSB Special | 4.69 |
| BNZ - Std | 4.69 |
| Wairarapa Building Society | 4.79 |
| Nelson Building Society | 4.87 |
| Westpac Special | 4.89 |
| Co-operative Bank - Owner Occ | 4.89 |
| Kiwibank Special | 4.89 |
| SBS Bank Special | 4.89 |
| Unity Special | 4.89 |
| ICBC | 5.19 |
| Westpac Special | 5.29 |
| TSB Special | 5.29 |
| BNZ - Std | 5.29 |
| SBS Bank Special | 5.69 |
| Co-operative Bank - Owner Occ | 5.69 |
| Kainga Ora | 5.69 |
| ASB Bank | 5.69 |
| AIA - Go Home Loans | 5.69 |
| Kiwibank Special | 5.79 |
| Westpac | 5.89 |
| SBS FirstHome Combo | 3.29 |
| AIA - Back My Build | 3.34 |
| SBS Construction lending for FHB | 3.74 |
| CFML 321 Loans | 3.95 |
| Co-operative Bank - Owner Occ | 4.99 |
| Co-operative Bank - Standard | 4.99 |
| Heartland Bank - Online | 5.30 |
| ICBC | 5.39 |
| Kiwibank - Offset | 5.65 |
| Kiwibank | 5.75 |
| Unity Standard | 5.79 |
