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Proposed New Rules for the sale of Residential Property

August 26, 2015

The Government announced proposed new rules for the sale of residential property in the budget.

Broadly speaking the proposal is to introduce a “bright line” test that assumes residential property sold within two years of purchase was purchased with the intention of resale. The proposed application date is 01 October 2015. (A bright line test is tax nerd speak for when a specific taxing point is triggered).

The effect of assuming a property was purchased with the intention of resale is that the sale of the property falls into the income tax net. You will now be taxed on what is, for most of us, currently a capital gain.

It is also proposed that if you make a loss on the property the loss can be offset but only against income from other land sales.

These rules are currently going through a consultation process. The proposal is that the rules do not apply to:

  • Owner-occupied housing
  • Property inherited from a deceased estate
  • Property transferred under a relationship property settlement.

However the existing tax law will continue to be applied.

The proposed rules also covered identification of purchasers of land. This legislation is already before Parliament. There are some rules in relation to the information to be provided by non-residents when they purchase house, however most of us are more interested in the rules for NZ residents.

We will be required to:

  • Provide a New Zealand Inland Revenue Department number (at the time of property transfer) if the property is not our main home.
  • New Zealanders who have been out of the country for three or more years will be required to have a New Zealand bank account in order to obtain a New Zealand IRD number.

Areas being reviewed in the consultation process are;

  • What is the acquisition date?
  • When are you held to have “sold”?
  • Is your land “residential”?
  • What is your “main home”?
  • What is the effect on land transferred under a property relationship agreement?

If you have any queries or need any help please contact us

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