Budget 2015 – Tax Law Changes

Riann Umaga-Marshall Accounting & Compliance, Reducing Tax

Last month, tweaks to the rules on taxing gains on property sales were announced.

As the law currently stands, if you buy a property with the ‘intent’ of selling it and making a gain, you’re required to pay tax on that gain. This hasn’t changed.

In short, what the Government is doing will make the ‘intent’ rule apply in more circumstances. They’ve also made some changes for overseas buyers, and will collect more information on property investors.

What has been proposed?

  • A new “bright line test”. From 1 October, all residential property bought and sold within two years will be taxable. Put another way, regardless of your intent, you’re paying tax on any gain made within two years of buying the property. There will be exemptions on the family home, estate property inherited or those sold under a relationship property settlement.
  • More funding for IRD to audit property transactions, increasing their ability to collect taxes due.
  • All buyers and sellers of land will need to provide their IRD number, except for that of their family home. This higher level of information sharing will allow for IRD to track and identify more property transactions that are taxable.
  • All non-residents will be required to provide their information relating to their homeland tax system. Another step included to help IRD ensure non-residents pay their fair share of tax.

What does this mean for you?

 

The proposed changes will mean a closer eye will need to be paid to any transactions you are involved with where land (excluding the family home) is bought or sold within two years. This apples regardless of whether your intentions were to make a gain or not.

 

The ‘bright line test’ makes it easier to identify capital gains that need to be included in your personal tax return. The stricter monitoring via collection of IRD numbers on land transactions will mean less room for movement where capital gains are made.

 

In affect the government has not introduced new laws around capital gains taxes but instead bolstered the ability for IRD to track and collect the taxes owing.

 

Before the proposals become law the government will consult on the details with an issues paper released in July. Legislation will most likely be release late August and the new test applied from 1 October.

 

If you have any questions or would like to discuss any issues regarding property transactions and how these changes may apply to you don’t hesitate to get in touch with us.