Subdivide now or later?

Question from John updated on 25th September 2013:

I have a vacant block of land in Wellington and I'm building two houses on it. I plan to keep the two house for ten years or more as these are for investment purposes. I will eventually sell them. From a tax point of view, when is the best time to subdivide? Now or in ten years time?

Our expert Mark Withers responded:

I will interpret your comment re sale as not indicating that an intent to resell was present at acquisition. If in fact you acquired with intent to on-sell then tax would be payable regardless of how long you hold them, as there is no ten year time limit in the intent provisions. Section CB 12 taxes gains a taxpayer makes from developing or dividing land within ten years of acquisition i.e. if you undertake the work within ten years the section potentially applies no matter how long you hold the land after that point if the division or development was within ten years after acquisition. There are however a number of exemptions from the taxing provisions, one of which includes land that has been developed to enable the taxpayer to derive rent. This section may be of benefit for you. Another taxing section covers taxpayers who are in the business of erecting buildings, you probably don't consider yourself to be in this business but you are none the less building two buildings on the land with a profit motive. This section would require a ten year hold from the point the buildings are completed to avoid the taxing provisions if your activities are sufficient for you to be considered to be in the business of erecting buildings.

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

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