An accountant warns that property tax laws in New Zealand have become more complicated with the introduction of the "bright-line test" for residential land. This law taxes any profits made from selling a residential property within two years, unless it was the owner's main family home. The accountant notes several traps for unwary homeowners, including being taxed on properties sold due to unforeseen circumstances like illness or job loss. He advises that property ownership is more complex now and homeowners need to understand factors like what qualifies as a main residence and when the two-year period begins and ends.

1. Property tax laws a trap for unwary
Home ownership is
more complicated
than ever, an
accountant warns.
Rob Stock reports.
P
roperty tax law may not sound
like a topic of holiday conversa-
tion, but one Auckland
chartered accountant believes
it should be.
Leicester Gouwland said owning
residential property had never been as
complicated as it was now.
He said traps for the unwary had
multiplied with the introduction of a law
designed to discourage property
speculation.
The ‘‘bright-line’’ test on residential
land in the Taxation (Bright-line Test for
Residential Land) Act 2015 meant that
anyone who on-sold a residential
property bought on October 1 or later
within two years would be taxed on any
gains they had made, unless they could
prove the property was their main family
home.
Gouwland raised the spectre of people
forced to sell as a result of sickness or job
loss and being whacked with unexpected
tax bills.
Gouwland, from accountants William
Buck Christmas Gouwland, said: ‘‘The
scary thing is, that they may not even be
aware of their obligations.
‘‘They may not be aware of the
significant penalties and interest
incurred by not filing income tax returns
and paying any tax payable.
‘‘Unfortunately these genuine
transactions are likely to generate most
of the tax payable because those aware of
the rules will plan their purchases and
sales to ensure they are outside the scope
of the rule,’’ he said.
‘‘Residential property ownership has
never been as complex as it is today, and
everyone buying residential land needs
to be well informed to ensure they are
[not] caught unwittingly.’’
Buyers of residential land needed to
understand the following factors.
Definition of residential land
The bright-line law covers homes
(excluding rest homes and retirement
villages), land zoned for residential use,
and land on which a residence will be
built. Lifestyle blocks are included, but
there is an exemption for farms. It also
includes baches.
Family home exemption
Gains on the sale of a family home are
not taxable as long as the home is the
owners’ ‘‘main’’ residence. A person can
only have one main residence. Where
spouses did not live together, Gouwland
said to consider only the occupying
spouse owning the home they lived in.
The two-year period
The start of the period is when the title is
registered to the owner, but the end is
when the contract of sale is agreed,
Gouwland said. ‘‘The savvy people will
know the date ... The ones who will end
up paying are the ones with genuine
changes of circumstances, like illness.’’
Mixed-use properties
Where a property was used both as a
family home and for a commercial
purpose, things could get complicated.
Advice might be needed for those whose
homes are also partly business premises,
or whose property includes portions or
additional dwellings being let out.
Partial ownership
People who partly own a family home
they do not live in do not qualify for the
exemption. That means parents who
help their young into a home by part-
owning it would be taxed on their share
of gains if the sale was within the two-
year window. ‘‘Parents may need to put
land used by their children in the names
of the children,’’ he said.
Sections
A section does not qualify for the family
home exception, even if it is intended to
be the site of the main family home.
Death and divorce
Residential property sold as part of a
deceased estate was not caught by the
bright-line test, and nor was property
transferred in a divorce settlement. But,
where a couple owned more than one
piece of residential land, on divorce only
Page 1 of 2
04 Jan 2016
Waikato Times, Hamilton Waikato
Author: Rob Stock • Section: Business Day • Article type : News Item
Classification : Metro • Audience : 25,138 • Page: 7 • Printed Size: 826.00cm²
Market: NZ • Country: New Zealand • ASR: AUD 2,233 • Words: 721
Item ID: 520077569
PMCA licensed copy. You may not further copy, reproduce, record, retransmit, sell, publish, distribute, share or store this information without
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2. one of them would receive the main
home exception, Gouwland said.
What constitutes ‘improvement’
The tax return on a sale within two years
of a property that failed the main home
test could be a complicated thing to
complete. Gouwland said there were grey
areas in which expenses could be
deducted from the taxable gain, and
which could not. Real estate agent fees
could be. So could the cost of
improvements, but not maintenance.
Advice may be needed to decide whether
work done was maintenance or capital
improvement.
Chartered accountant Leicester Gouwland
says many home owners may be unaware of
their tax obligations.
Sell a residential property within two years of buying it, and the taxman may want to hear all about it.
Page 2 of 2
04 Jan 2016
Waikato Times, Hamilton Waikato
Author: Rob Stock • Section: Business Day • Article type : News Item
Classification : Metro • Audience : 25,138 • Page: 7 • Printed Size: 826.00cm²
Market: NZ • Country: New Zealand • ASR: AUD 2,233 • Words: 721
Item ID: 520077569
PMCA licensed copy. You may not further copy, reproduce, record, retransmit, sell, publish, distribute, share or store this information without
the prior written consent of the Print Media Copyright Agency. Phone +64-4-4984487 or email info@pmca.co.nz for further information.