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 test 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
When co-owners subdivide land and keep a part each, each co-owner goes from owning a share in the whole of the undivided land to being the sole owner of the part of the land they receive. This is known as partitioning.
While the share of the divided land you receive may match the share you held as co-owner, you are considered to have disposed of your share in the part you did not keep to the other co-owner. In some circumstances part of the disposal may be taxable.
Our guide — Tax and your property transactions – IR361 has more information about the acquisition date and disposal of partitioned land.
Tax Technical advice
Read more about the application of the land sales rule to co-ownership changes and changes of trustees on our Tax Technical website.
Tax Information Bulletin (TIB), Vol 36, No 4 (May 2024) pages 96 - 100
Associated with someone in the property industry
The same rules apply if you're associated with someone in the property industry. This means you may have to pay tax on some or all of your property sales or transfers, even if you're not personally a property dealer, developer or builder.
Associated with a property dealer, developer or builder
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.
Minor means very little work, time, effort and expense is needed. For example, if the only costs were the surveyors and lawyers’ fees.
Read more about when development or division work is minor in our interpretation statement IS 20/08 below.
Major developments or subdivisions
If the development or subdivision involves significant spending or work, it’s generally taxable, with some exceptions. Major development work includes:
- earthworks
- roading
- draining
- contouring land.
Tax Technical advice
Read more about non-minor subdivisions, major developments and significant expenditure on our Tax Technical website.
QB 15/02: Major development or division – what is significant expenditure?
IS 20/08: Income tax – when is development or division work 'minor'?