Change on the way for taxation of property investment

April 23 2014

Residential property has long been a favourite investment for Kiwis looking to take advantage of no capital gains tax and a rising market. Under the Income Tax Act 2007, however, anyone who purchases a property with the intention of selling it later for a capital gain is required to pay tax on that gain when the property is sold. Designed to catch property speculators, this doesn’t apply to a person’s own home or property purchased solely with the intention of earning income from rent.

There has been some uncertainty as to when the requirement for an intention to sell should be measured. To clarify this, the government introduced a bill late last year – the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill, clause 7 – that defines the date of purchase as the date that the person acquires an estate or interest in the land. Practically speaking, this will in most cases be the signing of a contract, but not always.

Although a small change, it appears the IRD is going to take a more objective approach to enforce the rules for those who speculate in property. Anybody looking to invest in property should be aware of how these rules may apply to them.

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