It’s only a couple of weeks until the major changes around residential property taxes come into force – and we’ve been out and about on a bit of an educational blitz.
One of the big questions is: what’s the story with holiday homes – will bach owners be up for tax when selling? More on that later.
With three pieces of legislation involved, you’d easily be forgiven for losing track on where everything’s at. So, firstly, a sit rep: the Tax Administration Amendment Bill and the Land Transfer Amendment Bill – the legislation around information gathering – have just passed in Parliament and are now awaiting sign-off from the Governor General. The third – the Taxation (Bright-Line Test for Residential Land) Bill – is still working its way through the Parliamentary process, so might still face some changes.
The Bills that have passed require Land Information New Zealand to collect information when a property is bought and sold, and pass that on to IRD. A tax statement will need to be signed by each party to a transaction before the lawyers on both sides can register the transfer of the land.
If a buyer or seller don’t have an IRD number, they’ll need to get one, and income tax will be payable on the profit on land bought and sold within two years – if no exemption applies. Note: this is still in Bill form, but if you’re planning to trade property that could be open to the new tax any time soon, it’s wise to take advice now to ensure you’re not signing up for any unintended consequences.
At this stage, you’ll be exempt if the property traded is your main home, has been inherited or is part of a relationship property settlement. Remember, too, the exemptions only apply to individuals – not companies or trusts.
If you’re a buyer, you won’t be able to claim any future exemption if:
- You’re not a natural person – that is, you use a trust or company to purchase
- You’re based offshore
- You’ve relied on the exemption at least twice in the previous two years
The same applies for sellers, with the added condition that the land hasn’t been used for most of the time for a dwelling that was your main home.
And, that’s where holiday homes come in. Sorry, folks, if you buy a bach – that’s not used as your main residence – and decide to sell it within two years for whatever reason, as it stands, you’ll be hit for tax on any profit made.
