Taxing matters & 50 shades of grey

johnHs (1)Capital gains tax. Yes, there is a capital gains tax on property investments! It’s a misconception to think that property transactions are exempt from tax on capital gains.

The Income Tax Act has a number of provisions that catch gains derived from the sale of land. Here are some examples where gains on the sale would be taxable.

  • Land acquired for the purpose or intention of selling (there is no time limit). An example would be someone who buys property, gives it a quick make-over then sells it on for a gain.
  • Where the taxpayer (or associated person) carried on, at the time the land was acquired, a business of dealing in land and the land was purchased as part of their land dealing business; or the land was sold within 10 years of being acquired.
  • Where the taxpayer carried on, at the time the land was acquired, the business of developing or subdividing land (not being work of a minor nature) and the land was purchased as part of their land dealing business; or the land was sold within 10 years of being acquired.
  • Where the taxpayer carried on, at the time the land time the land was acquired, business as a builder and the land was purchased as part of their land dealing business; or the land was sold within 10 years of being acquired.
  • Where at least 20% of the gain was due to zoning changes.

This is a very simple run down of the main provisions and is by no means an exhaustive list. Every situation needs to be judged on its merits and there are a number of exemptions that may apply.

Some of the same principles apply to shares. For example, those who take up shares in the government assets sales with the intention of selling them immediately or shortly after listing should declare the gain. Likewise, if the shares are sold for a loss, the loss may be offset against other taxable income.

Unfortunately there are lots of ifs and buts and 50 shades of grey, which creates a great deal of uncertainly and exposes taxpayers to the perils of the IRD taking a different view than the taxpayer.

To give certainty to your tax matters contact John or your nearest Smart Business Centre to assist.

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