Taxation On Land Transactions

Although New Zealand doesn’t have a comprehensive capital gains tax regime, it has a complex set of tax rules for land transactions. For example, application of the bright-line test can result in the proceeds from the sale to be taxable. These rules ignore the capital and revenue distinction and bring many transactions that might otherwise be considered non-taxable within the tax net.

In a publication in September 2018, Inland Revenue revealed that land transactions continue to be an area of attention, even though several years have passed since the property compliance programme was first set up. Inland Revenue also reports that an additional revenue of $117m was assessed in the 2017/18 year because of audit activities on property compliance issues and over $7m in residential land withholding tax was deducted from properties involving overseas investors.

Considering Inland Revenue’s ongoing scrutiny, taxpayers should endeavour to get their tax obligations correct in respect of any land transactions they entered.

Property

Land Taxing Provisions

Amounts derived from disposing of land will be taxable if any of the sections from CB 6A to CB 15 of the Income Tax Act 2007 apply. These provisions deal specifically with the taxation of land transactions. Here is a short summary of the sections:

  • CB 6A: Bright line disposals – residential land acquired and disposed of within five years,
  • CB 6: Land acquired for the purpose or intention of disposal,
  • CB 7: Land acquired for the purposes of land dealing, developing or building business,
  • CB 8: Land used for a land fill prior to disposal,
  • CB 9: Land acquired by a land dealer or an associate and disposed within 10 years,
  • CB 10: Land acquired by a property developer or an associate and disposed of within 10 years,
  • CB 11: Land improved by a builder or an associate and sold within 10 years of completing the improvements,
  • CB 12: Land developed or subdivided within 10 years of acquisition and the development or division work is not minor,
  • CB 13: Land involved in a major development or subdivision,
  • CB 14: Land disposed of within 10 years of acquisition and 20% or more of the profit derived on disposal is attributable to a resource consent, zoning change or other similar factors,
  • CB 15: Land acquired from an associated person and the amount derived would have been income under any of the above sections had the associated person retained and disposed of the land.
  • CB 6A: Bright line disposals – residential land acquired and disposed of within five years,
  • CB 6: Land acquired for the purpose or intention of disposal,
  • CB 7: Land acquired for the purposes of land dealing, developing or building business,
  • CB 8: Land used for a land fill prior to disposal,
  • CB 9: Land acquired by a land dealer or an associate and disposed within 10 years,
  • CB 10: Land acquired by a property developer or an associate and disposed of within 10 years,
  • CB 11: Land improved by a builder or an associate and sold within 10 years of completing the improvements,
  • CB 12: Land developed or subdivided within 10 years of acquisition and the development or division work is not minor,
  • CB 13: Land involved in a major development or subdivision,
  • CB 14: Land disposed of within 10 years of acquisition and 20% or more of the profit derived on disposal is attributable to a resource consent, zoning change or other similar factors,
  • CB 15: Land acquired from an associated person and the amount derived would have been income under any of the above sections had the associated person retained and disposed of the land.

Certain exemptions may apply under the land taxing provisions. This includes residential land, business premises, farmland, and investment land exclusions.

Unsure if land provision applies for the sale of a property?

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