As record property prices are recorded in some places (e.g.
state houses selling for $2 million in Auckland), it is
perhaps timely to remember that while NZ does not have a
formal capital gains tax, profits on land can easily fall
into the taxing net.
This may seem counterintuitive, but is a reality for many.
In general terms, if land (with or without a building) is
bought with an intention of resale, or as part of a wider
pattern of buying/selling buildings (i.e. a business), then
the sale proceeds are likely to be taxable, with a deduction
for the cost of the property. This can also generate a tax
The taxpayer's intention at date of acquisition is critical
to this outcome, so subsequent changes of mind or
circumstances should be irrelevant to the taxing outcome.
I say ''should'' because sometimes actions speak louder than
undocumented intentions. For example, imagine you buy a house
to rent out but because you lose your job, you sell it within
six months for a gain.
Arguably, the short ownership period should not be
determinative of the profit being taxed, but without evidence
of the intention to hold for the long term, the IRD may
challenge the non-taxable nature of this transaction.
Clearly, documenting your intentions in this type of scenario
However, the flip side also applies - if you buy it for
resale but then change your mind and hold on to it for longer
(e.g. to rent it out), technically, it will always be a
Other circumstances that can turn what would ordinarily be a
non-taxable capital gain into a taxable gain can include
being associated with a builder, developer or dealer in land
at the time that the property in question is acquired (or,
Given how wide the ''associated persons'' rules are, the
offending entity/person may not be obvious to you. Of course,
if the property owner himself is a dealer in land, builder or
developer, similar taxing outcomes will probably arise.
Now to debunk some urban myths: simply living in a house you
have built does not necessarily mean that it falls outside
the tax net, nor is there a ''rule'' that says two or three
property transactions a year are OK (i.e. not taxed).
It would be remiss not to note that there are some exemptions
to these rules, but these exemptions are complicated and
limited in their application. Accordingly, it is generally
worthwhile to have a chat to your tax adviser if there is the
remotest chance that one of the taxing provisions may apply
to land you are looking to either buy or sell, as sometimes
''pre-emptive action'' may secure a better overall outcome.
On top of the income tax issues, GST can complicate things.
However, in most circumstances, land sales between two
GST-registered entities are zero rated. Flags for possible
issues include new purchasing entities (are they GST
registered?), people acquiring land for private or mixed
purposes, and non-registered vendors.
In summary, for most of us, property transactions tend to be
material in the context of our net wealth position, so
ensuring the best tax outcomes can make a big difference.
However, there is often little point in shutting the stable
door after the horse has bolted, so early advice is best.
- Scott Mason is the Managing Principal for Taxation
Consulting at WHK.