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Shining a light on taxable property profits

1 December 2015

Property is the word on everyone’s lips.

And with the market boom, it pays to be aware of a fairly new tax law to help clamp down on investors looking to escape paying any tax on their profits.

In Budget 2015, the Government announced it would tax capital gains on residential properties bought and sold within two years, other than the family home or an inherited estate.

Known as the ‘Bright-Line Test’, it supplements the ‘Intention Test’ – which makes gains from the sale of real property purchased with an intention of resale taxable – in the current land sale rules.

For a property to be classified the family or ‘main’ home, the following criteria must be met: the transfer involves the main home; the main home exemption hasn’t been used more than twice in the last two years; the party to the transaction is a natural person; and the party to the transaction is a not an offshore person.

Additional exemptions, other than the ‘main home’, include the disposal of land that’s inherited or the transfer of land pursuant to a relationship property agreement.

Buyers and sellers of property are also required to provide a tax statement and IRD numbers to ensure they pay their fair share of tax for profit paid.

If the seller or purchaser is a trust, the trust must have its own IRD number.

If you don’t have an IRD number, you need to obtain one before the settlement date.

I recommend you seek tax advice should your trust have overseas trustees, to ensure the trust is not categorised as an ‘offshore person’.

- Brierley Conquer
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