Although New Zealand doesn’t have a capital gains tax, there are a number of measures available for the IRD to tax people who are speculating on property investment.
For a number of years, IRD has actively chased property investors who they can identify are investing for the purpose of capital gain, and levy capital gains tax on them.
When people seek advice about property investment, we always advise that the activity of ‘investing for the purpose of making a capital gain’ is taxable. In todays environment, where rents barely cover costs and interest on mortgages, and often don’t make any dent in the principal owing on the mortgage, it is more likely that the goal of investing is for the purpose of making capital gain.
People who are in the business of building – like carpenters, and their associated persons, are also under the spotlight and have to be very careful with property investments.
The latest tool in the IRD’s box is that ‘virtually all people buying and selling properties will be required to put their IRD number on land transfer documents from 1st January 2020’.
This means that people who purchase a house, live in it (or not) while they are doing it up, but call it a family home, will be caught under the bright-line test.
For more information – the New Zealand Herald recently ran an article here.