Capital Gains Tax? Keep related posts in this thread, please.

[seema]

Capital gains tax

Hi all,

We bought an investment property in December 2014. Do we need to pay any capital gains tax if we sell it now?

Thanks in advance

[spaceman]

For about the Billionth time..........there is no capital gains tax in NZ

You may have to pay income tax on the sale, was your intent to re-sell the property for a profit when you purchased it??....if so then there is tax to pay

Cheers
Spaceman

[Anthonyacat]

To be fair Spaceman, there was a very recent law change popularly (and incorrectly) referred to as a Capital Gains Tax.

Seema; to answer your question, the new legislation only applies to properties purchased after its effective date. From memory that was 1 November 2015, but it could have been 1 October 2015.

However, if you purchased the property with intention to sell it, it doesn't matter when you purchased it, any gains are taxable.

[elguapo]

For about the Billionth time..........there is no capital gains tax in NZ

Depending on which calculation method you choose, the FIF rules are either a capital tax, or a capital gains tax. So there really is a capital gains tax, but not for property.

[fredt]

Hey guys, just wondering how much tax is calculated against income earned from selling a property within the two year period? Being employed, would it be calculated the same as my current tax rate or are income tax rates calculated differently? I can't find the answer on the IRD website...

[eri]

assume it would be classed as income

even if it bumped you to the top tax bracket...

[flyernzl]

You would be taxed at your marginal tax rate.

The assessed profit would be added on to your income from your salary/wages, and then the income tax calculated on that whole amount - just as if you had got a pay rise to that level of income.

[fredt]

Ahhhh I see. Thank you!

[Wayne]

Hey guys, just wondering how much tax is calculated against income earned from selling a property within the two year period? Being employed, would it be calculated the same as my current tax rate or are income tax rates calculated differently? I can't find the answer on the IRD website...

It would depend on how it is owned.
If in your own name or LTC then the profit is added onto your income and you will pay tax at your marginal tax rate.
If in a normal company then it is the company's profit and the company pays at the company tax rate.

[Catboy]

Capital gains tax question

I've heard that there's no capital gains if you sell a property after 2 years, but I've also heard that if you 'plan to' it can be classed as 'tainted' or something along those lines.

So my question is, if you start an investment portfolio and down the line decided to sell one of your places (after 2 years) what is the likelyhood of being taxed on the profit, and how would you best avoid getting into this situation.

Just to clarify this isn't my plan but I'd like to know what position I'd be in should it change... Does anyone here know?

(BTW, I have also posted this in the FB group, hope cross-posting isn't frowned upon but the FB group seems very active but this forum has more users... )

[Rosco]

Hi Catboy,

On my blog I've written about a recent IRD publication, which might interest you and be worth a look.

Basically , we look at your intention when buying.
- If intention is to sell for a profit then the gains will be taxable. There is no timeframe for this, so even if you sell in 6 or 16 years, the gains will still be taxable. Also watch GST.
- New rule, even if long term hold intention, but you sell within 2 years then taxable. Unless get exemption such as for personal home
- IRD recent publication, is trying to say that if you have an intention to get major capital gains, then those gains would be taxable.
- Also look at pattern. So if you frequently buy and sell, then a pattern could emerge and IRD could argue that really you are trading properties so taxable if sold within 10 years.

General advice
- be honest (if you are trying to trick the IRD, and get a trade non taxable, then you will probably get caught out)
- keep good notes, why you purchased the property, what you intend on doing with it. Keep away from saying hold for high capital gain in short term. Company and Trust minutes can help too.
- If you are a long term hold investor, try not to sell. If you do, keep good notes as to why.

Selling a property is quite normal. For example if you buy 10 properties, over time, at least one isn't going to suit your investment model long term, so you would sell to reinvest. Or you might have purchased a 'lemon' that you need to move on in a boom.

So having 1 sale doesn't create a problem. It would be more if you are selling alot, or have a pattern of say buying and then selling 2.5 years later.

Ross

[Catboy]

Fantastic, thanks Rosco, very helpful advice!

[Jasonm]

Hi Rosco

You mentioned at the top of your post to ''watch GST'',can you please elaborate on this..I thought GST only applied to commercial property and traders/developers that were registered for GST etc,
Am I correct in saying GST does not apply no non GST registered property buyers that are not in the business of trading or developing but purley buying for a long term investment

[fredt]

Yeah, I thought GST was zero rated in property?

[brend]

residential is an exempt supply. I guess what hes saying is if you get caught under intention test, your in business and therefore should had been GST registered as the supply is over $60k?