With a wider capital gains tax off the agenda, it would be easy to overlook the existing tax implications for property investors under the New Zealand taxation system.
Here, we look at two types of investment property ownership and what taxes apply, depending on your situation.
Property investors who buy for capital gains
Whether you will need to pay tax on your property depends on a number of factors. The first factor is ‘intent’. If you purchase a property intending to sell it to make a profit, it is likely you will be subject to tax on that profit. However, any tax implications are also subject to the following considerations:
- Your history of buying and selling. If you are deemed to be a property dealer, then you are likely to be liable for tax – even if you are selling your family home.
- If you’re a dealer, developer or builder. It is likely taxation obligations will apply to you.
- When you buy and sell property. Generally, any property bought between the 1st of October 2015 and 28th March 2018, and sold within a two-year period, will be liable for tax on the profit. Tax rules changed in March 2018, and if you sell any property bought after 1st October 2018 within 5 years of purchase, you are likely to be liable to pay tax on profits.
If you are a property developer, there may be other situations in which you are liable for tax, or situations in which any exemptions or exclusions won’t apply to you. We recommend you talk to your client account manager here at Agar Fenwick, to make sure you aren’t hit with any nasty surprises.
Property investors who buy rental properties
As already stated, if you buy a house with the intention of holding on to it, and don’t sell within 5 years of purchasing (where the property was bought after 1st October 2018), you are unlikely to have any tax applied to the capital gains you accrue.
However, it’s important not to overlook other tax obligations that are incumbent upon rental property owners. Remember, under New Zealand tax law, you are liable for tax on any income you earn. While there are deductions allowable for a rental property, if you make a profit, you will need to pay income tax.
The bottom line
With capital gains tax off the table (for now), you may be breathing a sigh of relief. However, just remember that tax often still applies to income and profits, depending on your situation. Make sure you know your obligations before buying and selling investment properties.
Disclaimer: please note that the advice provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to change and may not reflect current developments or address your specific situation.
If you are considering being active in the investment property market (buying or selling), we strongly recommend talking to our experienced and knowledgeable financial advisers to receive specific advice around your bespoke circumstances.
Contact us today if you have a specific enquiry regarding property tax, by reaching out to your client manager directly or getting in touch via firstname.lastname@example.org.
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