A Gains Tax - do I have to pay??? really?

[treewx]

Hi,

I have just been talking with my accountant about the tax implications of my portfolio. I have a LTC which holds my "Investment" properties - there are 8 properties in this company.

My intention was to hold these as an investment and when the time is right able to reallocate capital without incurring a capital gains tax. My accountant is saying that there is a good chance that I WILL have to pay capital gains tax. She believes that the IRD will see my portfolio as a "business" and as such be eligible for capital gains tax. She says if someone own 2 or 3 properties, then it's easy to say that this is not a "business" activity and thus not face Capital gains tax. However in my situation she expects the IRD will see it as a "business" and apply capital gains tax.

Can someone please help advise on this? Is she correct? I always just thought that since my intention was to hold as investments I would not have to pay any capital gains tax. Perhaps it's not so clear-cut?

Any clarification on this or tips/advise on how to reduce capital gain liability would be great!

Thanks!

[PTILoveYou]

Fire your accountant, she sounds incompetent in property tax.

Someone else on the forum (like Ross) can fill in the details.

Last time I checked CGT in NZ is 0% (Matthew Gilligan said so in one of the Richmastery Academy DVDs if my memory serves me right).

So IRD can only charge you income tax IF they think you are trading. God forbid your accountant setup your LTC as a trading entity (any email communication between you and your accountant on anything relating to trade or sell for profit at the time of the LTC formation could taint you)!!!

[Rosco]

Hi Treewx,

This isn't intended to sound harsh, but often your accountant knows your circumstances best, so maybe is aware of some catch or some reason why your properties could be tainted or the gains taxable.

It is too easy for me or anyone else to say that the gains shouldn't be taxable, but we don't know your full circumstances and maybe there is some other situation that the accountant has explained but you have missed?

A good option is to get a second opinion. Firstly are you looking to sell a property, if not, what is the issue? If you are looking to sell, then having a $245 initial appointment with me (or GRA) could be very worthwhile as we can give you advise as to whether any gain is taxable, and second maybe ways to reduce building depreciation recovery. The second isn't always possible, but worth discussing!

Ross

[Rosco]

Note land transactions are complicated and there is funny ways you can be taxed. For example
- residential house builder owns a rental property, purchased is 1950, $100,000
- does major renovations in 2010, cost $50,000
- sell in 2015 for $550,000

This example would be liable for tax on gain, and simple profit is $400,000!

Ross

[Bluekiwi]

Yep he is in the business of building and selling houses so he is always going to be taxed.
The main thing is not to have an accountant, but to have a "Property Accountant".

[Rosco]

Yep he is in the business of building and selling houses so he is always going to be taxed.
The main thing is not to have an accountant, but to have a "Property Accountant".

The builder example is because of the major renovations within 10 years of selling, and being a builder.

Ross

[donna]

So is there a rule of thumb re investment properties incuring CGT? What if the intention is to hold then after a year the rental property is sold - would that possibly incur CGT? and if not what if the next property also with the intention of holding is subsequently sold after say 5 years - what's the likely outcome?

Are you safe if you hold for 10 years? Or is there no rule of thumb at all and all can be up for grabs each assessed on their own merit under the current tax law?

cheers,

donna

[flyernzl]

Now I am confused.

I understood there is no Capital Gains Tax in NZ.

Sure, there are ways to incur a tax liability if you a property trader.

In this situation, the profit you make is subject to income tax in the year you make it.

But that is income tax, not CGT.

(If any advisor of mine started talking about my liability for a non-existent tax, I'd fire them immediatly as terminally incompetent).

[Lovethiscountry]

My understanding also is. There is no Capital Gains Tax in NZ

However If one buys say 10 properties with the intention of selling 5 after a number of years, than they will be taxed on the difference between buy price and sell price, for the 5 properties they sell because they were bought with the intention to sell and make a profit

[JABlog]

There is no time limit I understand , its when a gain on property purchased with a specific intention of resale at a profit is taxable.

[treewx]

Fire your accountant, she sounds incompetent in property tax.

Someone else on the forum (like Ross) can fill in the details.

Last time I checked CGT in NZ is 0% (Matthew Gilligan said so in one of the Richmastery Academy DVDs if my memory serves me right).

So IRD can only charge you income tax IF they think you are trading. God forbid your accountant setup your LTC as a trading entity (any email communication between you and your accountant on anything relating to trade or sell for profit at the time of the LTC formation could taint you)!!!

Thanks Gary. Well she was saying that because it is an LTC it is a problem (I am sure that my LTC is not set up as a Trading entity). She believes the problem is because it is an LTC. She says if it were just a normal Company (not an LTC) then it would be ok.

[treewx]

Hi Treewx,

This isn't intended to sound harsh, but often your accountant knows your circumstances best, so maybe is aware of some catch or some reason why your properties could be tainted or the gains taxable.

It is too easy for me or anyone else to say that the gains shouldn't be taxable, but we don't know your full circumstances and maybe there is some other situation that the accountant has explained but you have missed?

A good option is to get a second opinion. Firstly are you looking to sell a property, if not, what is the issue? If you are looking to sell, then having a $245 initial appointment with me (or GRA) could be very worthwhile as we can give you advise as to whether any gain is taxable, and second maybe ways to reduce building depreciation recovery. The second isn't always possible, but worth discussing!

Ross

Thanks Rosco.

well that's the thing.. everything is above board.. I actually do want them as investments and have acted congruently as such - I like the idea of building wealth.

I should mention that she said the problem arose because I had an LTC. If it were a normal company, this would not have been a problem. Yeah good idea, I will get a second opinion.
Why I am interested - I am actually NOT looking to sell, but have purchased again recently and am concerned about her belief that LTC's can incur Capital gains tax... am thinking perhaps I should abandon the LTC and hold this new property in a new company, one that is a standard company i.e. Not an LTC.

Thanks again.

[treewx]

I thought I heard Matthew Gilligan once say that you now need to hold a property for 10 years to be free of capital gains.. is that correct?

[ScottSI]

Having just been to another tax talk last week I would go another accountant based off information you have provided.

Talk to Rosco or another property specific accountant.

[Dugster]

[QUOTE=treewx;362907]Hi,

My intention was to hold these as an investment for a long time, and when the time was right to sell them free of capital gains tax.


To to be honest, the statement above doesn't help your cause much. You've just admitted you bought them intending to sell them at a profit.