Thinking about selling? Find out whether New Zealand property tax laws may affect you (by taking a chunk out of your capital gain). Whether this is your first home, or you’ve been out of the market for a few years, now’s a great time to brush up on your tax obligations.
Yawn… No, tax law may not be the sexiest subject, but it may well make a difference to your bottom line. Alongside getting a good price for your property, it’s worthwhile knowing whether you’ll need to pay a tax on your capital gain. Or whether you can invest that nice sum into something bigger or that meets your needs better.
Take a minute to check out this article, or find the answers to many other property sales questions in our handy ‘How to get ready to sell’ eBook.
The ‘bright-line’ test imposes income tax on those who sell a house within two years of purchase, except for the family home. If you’re a residential property owner, it covers land and your house, as well as land being developed with new homes. Good news. If you’re living in your property, it’s exempt from the bright-line tax rule. Also exempt are inherited houses or those transferred as part of a relationship property agreement.
The ‘bright line’ test helps the IRD tax residential property investors and developers, like speculators in Auckland, who before October 2015 made tax-free profits by quick-flicking houses in the City’s buzzing property market. It strengthens previous laws that taxed gains on houses ‘intended’ for resale – ‘intention’ being a slippery concept on which to base a tax law!
While the test is a good net to catch the big fish speculators, a few minnows are also getting hauled in. For example, if you lose your job and have to sell the bach or rental property you bought a year ago, you’ll need to pay tax on any gain, as it’s not your main home.
There’s also now a residential land withholding tax on house sales not caught by the bright-line test (family homes excluded) and by offshore owners. Under this rule you pay tax on income you earn if you buy and sell a house within two years, unless it’s your main home or another exemption.
Still not sure? In a nutshell: how New Zealand’s property tax laws affect you.
You’re selling your first home
It doesn’t matter if you’ve lived in your first home for less than two years: if it has been your main residence, the bright-line tax does not apply. You won’t be taxed on any capital gains. So whether you’ve outgrown the house, or would simply like a change of scene, it’s all good. Go ahead and reinvest those gains in your new casa.
You’re downsizing and making a tidy profit
Maybe you’ve owned a few homes over the years and want to sell the empty family nest for a low maintenance apartment and an extended holiday. No matter how big your house went up in value, you’re off the hook as you’re selling your main residence. And if the house is held in trust, you’re exempt from the tax if you’re a beneficiary. Bon voyage!
You’re flipping an investment property
This one’s pretty straight up. If you buy and sell a non-owner occupied home within two years, you’ll have a tax bill to pay. Tip: tax is assessed after expenses, such as selling costs and maintenance. Better stash those receipts.
Unsure how New Zealand property tax laws affect you? Always talk to your accountant or tax lawyer about your specific situation. To answer your other burning sales questions, download our ‘How to get ready to sell’ eBook.