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Capital Gains Tax – to be or not to be?

Capital Gains Tax – to be or not to be?

Published in July 2016

Refreshing your minds to our newsletter earlier this year we remind you of the Auckland housing crisis and the need for our much loved youth to turn to the “Bank of Mum and Dad” to begin their climb up the property ladder. The government has provided another “solution” – “capital gains tax” or perhaps more correctly, a mini-me version aimed to provide the Inland
Revenue Department (“IRD”) with the tools to police those who buy and sell property. Remember – you cannot escape the IRD.

As at 1 October 2015 every transaction involving the disposal of land requires the Vendor and Purchaser to complete a Tax Statement. Without a Tax Statement no transaction will take place. There are two types of tax statements:

  1. A “non-notifiable transfer”; and
  2. A transfer that requires “tax information”.

Every Tax Statement will need to be dated and state:

  • the full name of, and signed by, the Vendor or Purchaser;
  • whether the transfer is of land that has a home on it;
  • whether the Vendor or Purchaser or a member of that person’s immediate family is a New Zealand citizen or a holder of a resident, work or student visa; and
  • whether the transfer is non-notifiable.

The Purchaser must also state whether they or a member of their immediate family intend on living on the land.

1.  Non-notifiable transfer Tax Statement

If the transfer is non-notifiable, namely, it involves a transfer of the main home or a transfer by an executor acting as an administrator for a deceased person’s estate – no further information is required. You escape the IRD’s watchful eye and avoid providing your IRD number.

Only natural persons (ie. not a trust or a company) can provide a non-notifiable Tax Statement, but not natural persons who are:

  • providing the Tax Statement in the capacity as a trustee;
  • a Vendor who has claimed the main home exemption at least twice, within the immediately preceding two years; or
  • an offshore person

2.  Tax information Tax Statement

If the transfer does not qualify as a non-notifiable transfer for the person concerned, then the tax statement will also need to include the following tax information:

  • the person’s IRD number; and
  • whether the person is a tax resident in another country.

If the person is a tax resident outside New Zealand, they must also disclose the country, the country code and the equivalent of the person’s IRD number in that country.

3. Offshore person
As mentioned above, an “offshore person” cannot provide a non-notifiable transfer Tax Statement, and must provide the additional tax information. You will be an offshore person if you are:

  • a New Zealand citizen who is outside New Zealand and has not been in New Zealand within the three years immediately preceding the Tax Statement;
  • holding a residence class visa but are outside New Zealand and have not been within New Zealand within the last 12 months; or
  • not a New Zealand citizen or resident visa holder.

4. But wait – where does the tax come in?
If this all sounds like administrative red tape – you would be correct.

However as at 1 October 2015 the Government has implemented a “bright-line” test that will require income tax to be paid on any gains from residential property purchased and sold within two years. Exceptions apply for an owner’s main home, inherited property and the transfer of relationship property.

Given the above, John Key is correct in defining this new change as “not a capital gains tax” because it does not require income tax to be paid on all gains from residential property purchased and sold across the board. Criticisers have called this change more a “loop-hole” that will affect a very small number of property buyers and sellers. The change has, however, indicated one thing – Auckland has a housing crisis. The mini-me version of a capital gains tax is unlikely to change that. However, perhaps with the IRD’s new information collecting tool by way of the Tax Statement this crisis may be improved. With information comes the knowledge for change.

So no fear – the property tax law changes are unlikely to affect you more than a quick signature on one of the many forms to be signed when transferring land.

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