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  • Building Spec's

    Hi can any one help??? I'm building my first spec house and will be selling it asap. As this is the first one do I pay tax on the first one? What about the 2nd, 3rd? Any feedback would be great.

  • #2
    Um... argh.

    If you are building a house to sell, then yes you pay tax.

    Can I politely enquire as to why you went ahead and did this without finding out your tax liabilities first?
    You can find me at: Energise Web Design

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    • #3
      Hi Jacob

      As always Drelly is right....

      Basically the rule of thumb is if you have purchased to sell or built to sell then it is liable to tax. If however you purchased with the intention of retaining for investment purposes ( I have read that 10yrs is a good indication) then it probably isn't be liable to tax.
      Counter cyclic means always swimming against the tide

      Manawatu Property Investors' Association

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      • #4
        Or why not live in it first for a while? Wouldn't this make it OK?

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        • #5
          I believe the short answer {insert no-expert clause} is no...
          New to property investing? See: Best PropertyTalk Threads for New and Old Investors And/Or:Propertytalk Wiki

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          • #6
            The test is intention at time of purchase. So deciding later to live in it should not make a difference.

            Intention is hard to prove however since it can all be in your hear.

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            • #7
              Took me a while but I finally found it... an article out of KPI magazine June 2004 written by by Mathew Gilligan from "Gilligan Rowe and Associates", under the Experts Forum section:

              It's two pages long but it's pretty well what you're after Jacob. It has a flow chart summary at the end.

              I only had a very quick re-read of it; and using the flow chart staring with "was the land purchased with intention of resale?" (answer yes) it led me to the next question: "was land aquired and occupied as a residence or a business premise by the tax payer?" (answer yes), it finally ended at a box saying "sale will not be taxable under ss CD 1 (a)-(d).

              It sort of indicates that living in it may exempt you. But relying on a magazine article is not the way to get a correct answer as IRD rules are so vague! As CJ says, intention is a big factor (unfortunately, probably THE factor). Have a read of it anyway; if anything it will help you compose some good questions for your accountant.

              Cheers.

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              • #8
                Always pays to read the legislation:

                CB 14Residential exclusion from sections CB 5 to CB 9—

                Exclusion

                (1)Sections CB 5 to CB 9 do not apply if—

                (a)the person—

                (i)acquired the land with a dwellinghouse on it; or

                (ii)acquired the land and erected a dwellinghouse on it; and

                (b)the dwellinghouse was occupied mainly as a residence by—

                (i)the person and any member of their family living with them; or

                (ii)if the person is a trustee, 1 or more beneficiaries of the trust.

                What exclusion applies to

                (2)The exclusion applies to the land that has the dwellinghouse on it. It also applies to land related to the land that has the dwellinghouse on it if the total area of the related land is—

                (a)4,500 square metres or less; or

                (b)more than 4,500 square metres, if the larger area is required for the reasonable occupation and enjoyment of the dwellinghouse.

                Who exclusion does not apply to

                (3)The exclusion does not apply to a person who has engaged in a regular pattern of acquiring and disposing, or erecting and disposing, of dwellinghouses.
                Test is was house "occupied mainly as a residence" - This replaces "primarily and principally as a residence" (from the 1994 act) so assume it means the same think unless there is infor to the contray (would need research to be done.

                legislation is avaliable at www.legislation.govt.nz Income tax act 2004 sections CD5 to CD21. they rewrote it into "plain english" so now everyone should understand it (that is the change between the 1994 and 2004 act). Well good luck.

                A little knowledge can be dangerous. Always check with a professional.

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