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 is not enough for any profits to be taxed. In most cases you do not 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 regular 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.
Selling your property within a bright-line period
If you buy a property and sell it within an applicable bright-line period, you may have to pay tax on any profit, regardless of your intention or property buying and selling history when you bought the property.
The bright-line period starts on the date you bought the property which is generally the date the property's title is registered with Land Information New Zealand (LINZ) (generally the settlement date) and ends when you enter into a binding sale and purchase agreement to sell the property.
Which bright-line period applies to your property in most cases depends on when the sale and purchase agreement you signed to acquire your property became binding. If the sale and purchase agreement became binding:
- on or after 27 March 2021, the bright-line period is 5 years to the extent the property has a qualifying new build on it and 10 years for all other properties
- between 29 March 2018 and 26 March 2021, the bright-line period is 5 years
- between 1 October 2015 and 28 March 2018, the bright-line period is 2 years.
A property acquired on or after 27 March 2021 will be treated as having been acquired before 27 March 2021, if the purchase was the result of an offer the purchaser made on or before 23 March 2021 that couldn’t be withdrawn before 27 March 2021. This means that the 5-year bright-line test applies.
Resident land withholding tax for offshore persons
If you're an offshore person, a resident land withholding tax (RLWT) may also be deducted at the time of the property sale if you sell it within the applicable bright-line period.
RLWT is deducted unless the seller holds a certificate of exemption from RLWT.
Residential land withholding tax (RLWT)
Your main home is the property where you live for most of the time or if you have more than 1 property it is the one that you have the greatest connection to. If your property was used as your main home for the entire bright line period it may be excluded from the bright-line property rule.
Exclusions to the bright-line rule
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 with a land dealer, developer or builder
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 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 with 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.
QB 16/07: Income tax – land sale rules – main home and residential exclusions – regular pattern of acquiring and disposing, or building and disposing
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.
Use this decision tool to help you work out if the property you are buying or selling is taxable under any of the property rules.Go to this tool
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