If you're buying residential property, make sure you know what your tax obligations will be when you come to sell the property.
It's your intention when you buy a property that matters
Nearly everyone buying a property will sell it at some stage. However, this alone isn't enough for any profits to be taxed. In most cases you don't have to pay tax when you sell your main home or if you bought the property as a long-term rental investment.
You need to think about your intentions when you first agree to buy a property. What you intended to do will determine your tax situation when you come to sell. If you buy with a firm intention to resell the property, then you'll have to pay tax on any profit you make. This is called the 'intention rule'.
The intention to sell does not need to be the main reason for buying the property - it could be one of a number of reasons for buying.
For example, if one of your intentions when buying is to flip the property, even if it is rented you'll have to pay income tax when it's sold.
This intention rule is different to the bright-line property rule.
Your history of buying and selling counts
If you have a pattern of buying and selling property, then you may be considered a property dealer and may have to pay tax when you sell property.
This may apply even to your main home, if you have a pattern of buying and selling the home you live in.
There is no set number of properties you can buy and sell before you may need to pay tax on profit from sales.
If you're unsure whether you're a property dealer, you should seek advice from your tax professional.
Are you likely to sell within 5 years?
If you buy and sell a property within 5 years, (2 years if you purchased the property on or after 1 October 2015 through to 28 March 2018 inclusive) you'll pay tax on the income you earn from the sale. This is the bright-line property rule, it applies regardless of your intention when you bought the property.
If the property is your main home and you use it as your main home for more than 50% of the time you own it - you are covered by the main home exclusion. It's not enough to plan to live there, you must actually have lived there.
If you're an offshore person, a withholding tax may also be deducted at the time of the property sale - if you have owned the property for less than the bright-line property rule period.
Residential land withholding tax is deducted unless the seller can apply for a certificate of exemption from RLWT.
Residential land withholding tax (RLWT)
The main home exclusion when you sell a property
Your main home is generally excluded. Any gain you make on the sale of a property is not taxable if you either:
- bought the land with a house on it
- built a house on the land.
You must have used the house as your main home. The main home exclusion also applies if:
- you are a trustee of a trust and one of the trust's beneficiaries lives in the property
- you are a property dealer, developer or builder or an associated person.
The main home exclusion does not apply when you have a regular pattern of either buying and selling or building and selling your main home.
Just occupying the premises for a short period is not enough, it must be occupied mainly as your residence.
If you're a dealer, developer or builder
You are liable to pay tax on the profit of any properties you sell which were bought as part of your property or building business. Also, you may need to pay tax on properties not purchased as part of your business if you sell them within 10 years.
The 10 year rule
If you sell a property within 10 years of buying it or, in the case of builders, within 10 years of completing improvements to it you may have to pay income tax on the profits. Even if the property was not purchased as part of the business you may still have to pay tax.
If you are in these industries or associated to someone who is, we recommend you speak with a tax or legal professional to find out how these rules apply to you.
If you're associated to a land dealer, developer or builder
If you're associated to 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 at the time the property was acquired you had an association with:
- a property dealer or developer when you brought the property
- a builder when significant improvements started on a property.
If you are in these industries or associated to someone who is, we recommend you speak with a tax or legal professional to find out how these rules apply to you.
Property and associated persons
Land transfer tax statement
People buying, selling or transferring property must provide tax information using a Land transfer tax statement. Land information New Zealand (LINZ) collect the information on our behalf. Tax statements are required when most land is transferred.
We use the information to make sure property tax obligations are met. Even if the sale of your home is not taxable, you must provide your IRD number on the tax statement. A separate statement is required from every seller and buyer.
Property tax compliance requirements LINZ
Our question we've been asked QB16/07 has more detailed information about regularly buying and selling properties.
Our question we've been asked QB 16/06 has more detailed information on land acquired for a purpose or with an intention of disposal
QB 16/06: Income tax -and acquired for a purpose or with an intention of disposal
You can use our property decision tool to work out if you have to pay tax on a property sale.
