Subdividing and then selling off a part of your existing residential section is generally not taxable as long as 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 sale is not in the bright-line period.
Selling subdivided land
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.
If you sell a subdivided section where you or your family live in a residential home and you make a profit – the profit is taxable. The exception is if the reason you subdivided or developed the section was to create a residential home and you do not intend to sell it.
The tax rules around the sale of subdivided and developed sections are complex, and it’s always a good idea to seek advice from a tax advisor to make sure you’re getting it right.
If you're a dealer, developer or builder you are liable to pay tax on the profit of any property you sell which 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 income.
This also applies if you're associated with someone in the property industry.
If you are associated with someone who is in the property industry
If you're associated with someone in the property industry - you're an associated person. This means you may have to pay tax on all or some of your property transactions, even if you're not personally a property dealer, developer or builder.
These transactions include tax on the sale of a property if when the property was acquired, you had an association with any of the following:
- a property dealer or developer when you brought the property
- a builder when significant improvements started on a property.
Non-minor subdivisions started within 10 years
If you develop or subdivide land within 10 years of buying it, the development or subdivision is taxable unless the work is minor.
Major developments or subdivisions
Where the development or subdivision involves significant expenditure or work it is generally taxable, with some exclusions.
Our question we've been asked QB1502 has information about major developments and significant expenditure.
To work out if the profit on property sales is taxable, use our decision tool.