Accountants have spoken: you might have owned a property for longer than two years – and even lived in it – but that doesn’t mean your sale winnings won’t be taxed.
Inland Revenue is doing its bit to help property owners understand their tax position following the reintroduction of the two-year bright-line test for residential property.
The tax collector has launched a tool to help property owners see if their property is taxable under any of the land taxing rules.
But one thing is clear: if you bought a property intending to sell it, no matter how long you’ve owned it, or if you have a history of buying and selling that might be viewed as ‘dealing’, then you should expect a tax bill. In other words, any property that is bought with the intention of sale can be taxed, irrespective of the bright-line test.
How will IRD know property owners are trading?
IRD has eyes everywhere, including on files at Land Information New Zealand (LINZ). The departments operate an information sharing agreement that enables IRD to track the number of sales a particular taxpayer has made and detect developing patterns of sales activity.
There is no fixed rule about the number of times a person could buy and sell or renovate and sell houses and not be taxed. However, generally, three prior transactions would be needed for there to be a regular pattern.
‘Traders’ will be asked to provide information explaining why they think they should be exempt from paying the tax. Some might argue that because they are living in a property it qualifies for the main home exemption. Not so – the claim is overridden when you’re living in a property while doing renovations to flip it on.
IRD’s system is smart enough to see connections
Tax expert Robyn Walker, a partner at Deloitte, reckons IRD’s system is smart enough to make connections between taxpayers. “If you had a couple that were splitting the property between different names or IRD numbers or putting them in trusts or companies I would expect it would have the analytical capacity to say these interrelated entities are purchasing a property and use that to start information requests. Once you establish yourself as doing that kind of activity the connection will be drawn. The onus is on the taxpayer to prove why they shouldn’t be taxed on those transactions,” she said.
All the excuses in the book
People are pretty creative when it comes to avoiding tax.
Walker recounted a couple who bought and sold 11 properties over 12 years. “They had all these excuses… there was a creepy guy next door. They had to sell it. They weren’t flipping, life circumstances … then they moved to a new house and there was a noisy railway line next to it and then they moved to another house and there was another creepy guy or something and then it transpired that all the houses were all on the same street,” she said. “It was a good example of the kind of things IRD deals with when they’re looking at these sorts of things. It’s a matter of trying to unpick what you’re being told and get to the truth of the matter.”
Thinking twice before selling?
Who knows just how many property owners now might think twice before taking a property to market.
Holding property isn’t a bad thing – Auckland rents are still close to historic highs.
Figures published by Infometrics show the average weekly rent in Auckland was $625 in 2024 – higher than the New Zealand average of $560. Growth in average weekly rent in Auckland was 7.4% for the year to March 2024.
TradeMe data shows there were 6,600,000 rental listing searches in August (2024) – about the same as last year – and there was a total of 11,678 new rental listings that came onto that site. That’s a 25% increase on last year. The average rental listing spends 22 days on TradeMe – up 29% year-on-year (+5 days).
More rental properties mean pickier tenants. Call 0800 GOODWINS to see how small improvements to your property can increase chances of renting success.
