in & out in 6 weeks!!!

[billyt]

Hi everyone,

I am looking at doing house relocations in NZ, i will be using my own money entirely.
Each job will be completed from start to finish in roughly 6 weeks.

I would like to know about the tax implications for on selling property for a profit this quickly. Is there any kind of capital gains tax to pay like there is in Australia.


Thanks for your help!

[CJ]

NZ does not have capital gains tax but does have a quasi capital gains tax through rules deeming certain gains which are normally classified as capital in nature as income and therefore, subject ot income tax.

Since it is your intention to sell, any gain you make will be treated as income and subject to imcome tax at your marginal rate (between19.5% and 39% depending on annual income or 33% if done through comapny or trust).

If you do enough of these quick sells, you may be deemed a trader and as such, all sales will be deemed to be income, even if the intention was to hold long term.

These are just two of a number of rules that classified gains normally capital in nature as subject to income tax.

Note that the IRD has lauched a couple of flying squads which are targeting people who are caught by these rules yet decide to ignore it, either but choice or by simple ignorance. They started in Queenstown and had so much success (ie collected a lot of extra revenue) that they have set up another unit in Auckland. Remember that Land transactions have a very clear paper trail so they can infer intention (even though it is subjective) by reading into the facts gained from the documentary evidence.

[billyt]

thanks cj,

That is an excellent response to my question and has cleared up any confusion that i did have.

One last area i want to know about is if i rent out the properties for a minimum of one year and then sell them would i have to pay gains tax???


Billy T.

[tamara]

Billyt

I think that you will find that the answer to your question is all about intent. If your intent is to sell now or in 12 months you will still be considered a trader.

Tamara

[dksnz]

Tamara, you're right - in reading the latest NZPI mag and all about tax man hunting it is all about the original intention, and in some parts it mentions a past of upto 10yrs on a property!?

[billyt]

thanks guys,

I am cuurently in Melbourne and over here they rave about nz having no capital gains tax but it appears this is not the case at all!
When i sell my investment property in melbourne which i have held for 14 months i pay tax on only 50% of the profit. Is this the same in Nz or do i pay tax on the total profit???


Billy T

[Marcus]

Hi Billy T,

On the total profit.
There are also GST implications you may need to consider.
I would suggest that you contact an accountant to get a more clear picture of what you may be in for.

Regards,
Marcus.

[Julian]

CJ

My understanding is that if you do any deliberate trades, as opposed to "if you do enough of these" then the tainting will occur, and subsequent investment purchases sold within ten years will be deemed to be trades, making the capital gains taxable as income.

It seems the IRD class any intention to trade, even if subsequently rented, used by family, or left vacant, as being enough to move the activity into that of "earning income", and therefore any profits on the sale are taxable at the personal or company rate.

I understand if you trade in your own name, and are not registered for GST, all sorts of nasty things can happen. For example you can be ordered to pay GST on the sale price, but can also find yourself unable to claim back the GST on the purchase price as you were not GST registered at the time you purchased. This makes a bit of a mockery of the line they used to tout, "it's our job to be fair". They had to drop it as it plainly wasn't true. It's a bit like the police uniform, which used to be symbol of law and order, but is now so often a symbol of revenue collection.

Food for thought.

Julian

[CJ]

My understanding is that if you do any deliberate trades, as opposed to "if you do enough of these" then the tainting will occur, and subsequent investment purchases sold within ten years will be deemed to be trades, making the capital gains taxable as income.

You have had me running back to my original post to see what I said. Without looking at the legislation:

If you have intention to sell, you are caught. Even if you intent to hold for 1, 2 or even 5 years before you intent to sale.

The trader one (or builder or developer) look to see if you are one of those. Are you are trader if you only do one. No. You have the intention to resell but you are caught by the intention section not the trader section. After a while, if you do enough, my take on it is that you graduate to "trader status" and every thing sold is caught. Are you a builder if you have only built 1 house. No. but after a few, my take is that you wil graduate to "builder status" and everything sold is caught.

That is unless you hold for longer than ten years. Then only properties sold as part of being a trader (developer/builder) are caught. An example for the developer is easier. Developer buys a couple of bits of land which are both held for 11 years. The first was bought to develop and after the 11 years the deveper sells it with a few houses on - this is caught. the second he built a house on but that was bought for his own personal use (ie not developing) - say a beach house (I haven't used PPOR as that is a separate exclusion) - this one isn't caught as he held longer than 10 years and it wasn't bought as being a developer. FI he had sold this beach house after only 9 years. If would be subject to tax even though not as part of his trade (a developer).

Maybe my wording wasn't precise but I hope this clarifies what I meant.

[Julian]

CJ

the second he built a house on but that was bought for his own personal use (ie not developing) - say a beach house (I haven't used PPOR as that is a separate exclusion) - this one isn't caught as he held longer than 10 years and it wasn't bought as being a developer.

I think it might depend on when the beach house was completed. My take is that the beach house would have to have been completed (signed off) for at least ten years, so if s/he retained the bare land for 5 years, then built, this gain could also be subject to tax.

Are there any accountants/tax lawyers that can clarify this?

Julian.

[MJU]

Clarification from Accountants / Tax Lawyers

You should take specific advice on this.

The factual situations make a difference, and not always at the margins.

I think it was Groucho Marz who said "a verbal guarantee isn't worth the paper it is written on"

Unless the advice has your specific facts carefully researched it may be as useful as a verbal guarantee!

Cheers,

M

[CJ]

Julian,

Would have to read the legislation to discover that. If you are in this position, it is probably best you talk to an accountant anyway.

there are many ways they catch you which most people wouldn't know about but doesn't really matter as they wouldn't be audited. The Zoning change one is one I am sure would catch many people but it would just get lost in the detail.

MJU I like that Quote.