Although there is no specific capital gains tax in New Zealand, you can still be taxed on the gains you make when you sell your real estate properties.
The Income Tax Act has a separate section on taxing land transactions, specifically sections CB 6A, and CB6 to CB 14 deals with land transactions.
In summary, your property transaction can be taxed if it falls under any ONE of the following:
1.Bright Line Test for residential property (CB 6A) – Disposed of a residential property within 2 years that you acquired it. Only applies to residential land transactions acquired after 1 October 2015.
2.Acquiring land for the intention of resale (CB 6) – Disposed of land/real estate that you bought and at the time of purchase, one of your intentions was to sell the property.
3.Persons in the business of dealing with land, subdividing land, developing land, erecting buildings on land can be taxed on their land transactions (CB 7). If you buy property to use in your land dealing, land subdividing, or erecting buildings business, any gains when you sell it will be taxed.
4.Even if the land is not bought for the purpose of the real estate business; land dealers, developers, subdividers (and their associated persons) can be taxed if the land was disposed of within 10 years of purchase (CB 9, CB 10). For people in the business of erecting building, the 10 years start from the date you make improvements on the land. So even if you (or an associated person) is in the business of erecting buildings, and bought a piece of land for private investment in 1980 and left it empty until 2010. In 2010, you built a house on it and rented it out for a few years before selling it in 2016, you will still be taxed under CB 11. This is because the property was sold within 10 years of completing the improvements (house was completed in 2010 and sold in 2016).
5.Land bought for a development, subdivision or scheme which started within 10 years of purchase (CB 12)
6.Gains on property due to a change in zoning may be subject to tax (CB 14)
7. Even if the first 6 criteria don’t apply to you, CB13 could apply if you bought a section and undertook significant the development or division work involves significant expenditure on channelling, contouring, drainage, earthworks, or work customarily undertaken or provided in major projects involving the development of land for commercial, industrial, or residential purposes.
If any of the situations on the following page apply to you, you may be able to rely on a number of exemptions including owner’s home, business premises, or farmland. (CB 16 to CB 23).
As always, each person’s tax affairs is different and its always recommended you check with your accountant to see whether you are liable for ta when you sell your real estate.