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

[treewx]

yeah good point.. I mean I didn't actually mean that 100%.. Kind just wrote like that to try and flesh out some answers... I am holding them as investments but there will be a time when I want to allocate my capital differently.. I would like to do that without incurring a capital gains tax.

[Anthonyacat]

To save Rosco some time when he comes back to the thread during NZ-daytime, I'll just clarify a couple things at a really basic level:

1. There is no "Capital Gains Tax" in New Zealand, yet.

2. In some circumstances property can have its gains taxed as regular income tax. Most commonly when there is a pattern of buying and selling, or firm intent to onsell at the time of purchase. Just like if you bought umbrellas or shoelaces in order to sell them for more, you'd be taxed on the profit as income.
2b. It is up to the IRD to suggest you have a pattern or intention. It is up to you to prove a negative - that your intention was long term holding. Keep good records, and make things clear.

3. The acknowledgement at or before the time of purchase that a property will one day be sold is not the same thing as intention to sell.

4. The legal structure of your investments has nothing to do with whether the gains will be taxable or not. There is no difference between an LTC and a regular company for this purpose.
4b. UNLESS the LTC clearly points towards a pattern or intention of trading. Like, perhaps the company is named "Treewx Property Flipping Limited". Then there's a good chance you're stuffed.

5. If a property is considered trading stock due to purchase intention, no amount of holding it will make that status go away. You're stuck with it until it is sold. The 10-year rule you're discussing is something entirely different.

6. Based on the information you've provided here, it really sounds like your accountant has no idea. Of course it may be half the story. It's well worth the $250 or whatever Rosco will charge you for an initial meeting. Think of all the tax it might save, for a less than one week's rent from one property. I'd offer my own services as an alternative but am not presently looking for new work.


EDIT: Have a little read of https://www.ird.govt.nz/property/pro...th-investment/. It's fairly clear on the basic views of the IRD.

[rocket]

Hi everyone.
we have done a s&p agreement recently to buy a property with the intention to resell it. There are some weeks left for settlement. I can still nominate the purchase to either my recently created trading entity or my old investment entity.
We are now planning to hold this property long term.

Can I do it now or is it tainted & better be sold off?
Experts please advise. Thanks.

[treewx]

Wow! Thanks Anthonyacat.

Such a helpful post, helped a lot. Will heed your advice and look into a new accountant.

[Invest]

You'll be fine. Look at sections cb6 to cb23 of the income tax act to see what applies to you. Also bare in mind the associated persons rules - if you are associated to a person in the business of dealing you can also be caught. If you sell a property here and there I'm sure you'll be fine. In reality ird will only come after you if you've bought and sold at least 3 properties within a relatively short period of time. The purchase with intent to sell section could apply to the majority of ppl in Auckland - ie their property returns are negative so wouldn't have bought unless they thought they were going to get a good capital gain - which you obviously have to sell in irder to realise. Ird wouldn't assess all these people for tax - they'd much rather fight the easier battles like the guy who has flipped 3 properties in the last few years.

[treewx]

Thanks "Invest". I assume the remedy to the "associated persons" rule for those who have a buy and hold company and trading company is to ensure their operations are kept completely separate. If so, then no problems.

Thanks

[Anthonyacat]

In some cases there is no remedy for the associated persons rules. If you're a cc lose relationship to a house builder you may well be caught regardless. Not fair, but plenty of laws aren't, especially tax ones.

As for Invest's assertion that buying a loss making property is the same as buying with intent to sell, is absolute rubbish. While in some cases property speculators do exactly this, there are plenty of genuine investors who buy negatively geared property knowing that once the mortgage is paid down it will generate profits. They are aware that the property will likely get capital gain as well, but this is incidental as they have no intention to sell. Besides, as I said somewhere earlier, acknowledging that you will eventually sell the place is not the same as intent to sell.

[Rosco]

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.

Hi treewx,

From your answers if sounds like your accountant has got this wrong. There are no different tax laws for an LTC.

I would suggest getting your current accountant to put the reason in writing, and then get a second opinion. It sounds completely wrong what your other accountant is saying, but sometimes stories change as they get heard and then retold, so by getting in writing it is very easy for second accountant to check and explain to you.

Ross

[BeachBunny]

Rosco, Have sent you private message. Check your notifications top right of page.

[Jasonm]

Who decides if you purchased a property with intent to sell?is this something your bank or accountant tracks for the ird?

[Rosco]

Hi Jason,

It is 'your intention when you buy it'. So you are the only one who really knows your intention.

So your notes, your accountants, lawyers bankers, property managers, real estate notes all help to identify an intention. Plus company or trust minutes.

Unfortunately, IRD look at the result, and don't know the original intention. So if they see 5 properties sold within 2 years of buying, they are going to think you are a trader.

So it is important for you to make good notes at the start when you are buying the property, and also make sure your advisors do the same.

Ross

[Davo36]

A little more 'surety' around this today:

PM makes major move on housing profits and foreign buyers

A capital gains tax on people selling residential property within two years of buying it, announced by the Government today, is an admission that there is a housing crisis, says Labour leader Andrew Little.


Prime Minister John Key announced the plan this morning as part of the Budget package.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11450124

[Anthonyacat]

Property Institute Chief Executive Ashley Church is further spreading the ignorance around the current intention laws having a 10-year timeframe. You'd expect someone with that title to know what they're talking about; or at least to check before being quoted in the Herald.

[Bluekiwi]

Interesting to see the Govt and RB working together tag team on property.
You cant tell me they arent coluding behind the scenes.
But I think both are sensible moves, attempting to kill off a bit of bubble and froth.

The targeting of oversease investors was interesting.
As IRD / RBNZ, seemed to indicate that they find it impossible to track these oversease (high proportion chinese) buyers down.
They are working on paper trails and by having a bank account, you need to really detail and evidence of exactly who and what you are.

I sense a lot of this going back to John Key paying some attention to this area.
And getting to what needs to be done, in small steps, the silent smiling assasin at work.
The man who has done more against property investors than 1 century of labour governments.
Not that I am saying it didnt need doing.

These measure coming out will enable identification and classification of property investors and overseasee buyers.
So both GOVT, RB and IRD can target.
Not a bad idea, as I see a lot of Indian / Chinese people (names that sound indian / chinese) selling property after 1 to 2 years, and I doubt they are paying more than zero tax, either GST or income.
That seems to be the modus operandi for these guys, just hold and do nothing to the property for about an 18 month period is my guess.