By Phil Barlow – 18 May 2015

The property market, and in particular the Auckland housing market, has in recent times been a hot topic for both media and residents alike.

Many people will have directly experienced the blunt end of the residential property market when trying to buy a house.  If not directly buying or selling, many of us will have otherwise heard of the experiences of friends, family and colleagues who have turned up to auctions where the starting price is $100k or more over the recently issued QV’s.  In this regard I am surprised the Auckland Council has not picked up on the idea of amending property rates to the value of a property that has just sold.  It would seem that might be a more equitable way of them squeezing more revenue from the ratepayers than pushing rates up across the board.

Anyway……this brings us to the latest pre Budget announcement by the National Party over the weekend which, if enacted, will apply to property bought on or after 1 October 2015.

The proposed changes (which some are suggesting is a dressed up capital gains tax) will tax any profit on the sale of residential property where the property has not been owned for 2 years. There will be exceptions to this rule where the property is the seller’s main home, inherited from a deceased estate, or transferred as part of a relationship property settlement.  Clearly it seems there may be some complexity around this, particularly in relation to the “main home”.  i.e. can a person have more than one main home (e.g. bach and home), can the seller be a trust or other entity and this still count as the persons main home etc?

Whilst it seems there is an expectation some people may work around this magical 2 year period, in a wider context a process will be put in place that will easily capture land transactions as they take place.  This is to be done by way of requiring the investor to provide a NZ IRD number as part of the land transfer process.  In addition, non-residents will need a NZ bank account number in order to be able to buy a property.

Since the announcements were made, many commentators have pointed out the NZ tax legislation already has a wide set of rules around the taxation of land transactions.  Specifically, there is a rule that taxes the gain on sale when a property has been acquired for the purpose or intention of resale.  In reality, this rule is particularly hard for the IRD to prove and equally may prove challenging for the taxpayer to disprove in some circumstances. The proposals therefore appear to bolster these tax rules.

As a further measure, there is a possibility that withholding tax would need to be deducted from the proceeds of sale by a non-resident, unless that person can prove the property was their main home.

The Budget will allocate $29m to the IRD to assist them to target land transactions.  They have already proven to date that this area produces a big return in terms of tax discrepancies identified.

More details of these changes are likely to come to hand in the coming weeks.

If you have any questions regarding these proposed changes or any property transactions you may be involved with, please contact either Phil Barlow or Shelley-ann Brinkley.

Phil Barlow
Tax Director
T +64 9 414 5444
E phil.barlow@hayesknight.co.nz

Shelley-ann Brinkley Associate – Tax Consulting
T +64 9 414 5444
E shelley-ann.brinkley@hayesknight.co.nz