Te wawae me te whakawhanake rawa whenua hei hoko atu Subdividing and developing property to sell

If you subdivide and then sell off a part of your existing section, you only need to pay tax in certain circumstances.

Generally, you do not need to pay tax if all of the following apply.

• You do not have a pattern of buying and selling properties.
• You did not buy the undivided section with an intention of selling part or all of the property.
• The bright-line property rule does not apply to the sale.

Your intention when you buy

If you buy a property intending to subdivide and sell off some or all of the sections, the profit from the sale of those sections is taxable. This also applies if you buy several already subdivided sections intending to sell them.

Subdividing your home

If you buy a residential property, intending to live in the existing home and to subdivide then sell off the other part of it, then you probably need to pay tax on your profit when you sell the subdivided part. This is because you always intended to subdivide and sell.

You do not pay tax when you sell the part you live in.

Get tax advice

The tax rules around the sale of subdivided and developed sections are complex. We recommend you speak with a tax advisor to make sure you’re getting it right.

Dealers, developers and builders

If you're a dealer, developer or builder, you must pay tax on the profit of any property you sell that is part of your property or building business.

If you decide to leave the property business, you may still own some properties. If you sell these properties within 10 years of buying them, any profit you make is taxable. This is the 10-year rule.

Learn how the 10-year rule could apply to you.

Property dealers, developers and builders

Subdividing co-owned land

Sometimes people pool resources to purchase land, becoming co-owners. Co-owners may then subdivide and allocate the land based on their original ownership interests. This is known as partitioning. In some circumstances the subdivision may be treated as a disposal of land at market value under the bright-line property rule or other property taxing rules.

The bright-line property rule or other property tax rules do not apply if the value of the partitioned land matches the interests you and your co-owners had in the undivided land. The value includes your contributions as co-owners to development and building costs.

If the land of a co-owner's partitioned interest after subdivision is more than their original co-ownership interest in the undivided land, the difference may be taxable.

When the difference is not taxable

If the difference in allocations is less than 5% of the smallest co-owner’s original interest, the difference is not taxable. A difference could happen because of the land topography (landscape).

When the difference is taxable

If the difference is 5% or more of the smallest co-owner’s original interest, the full difference is taxed under the bright-line property rule or other property tax rules.