Investors are being warned not to expect to be able to dodge capital gains tax just by holding on to their properties longer than two years.
The “bright-line test” was passed into law yesterday, requiring property investors to pay tax on gains made on properties they bought and sold within two years.
Revenue Minister Todd McClay said it was an important tool ensure property speculators paid their fair share of tax.
The measures will require income tax to be paid on any gains from residential property purchased on or after October 1 this year and sold within two years.
The exceptions are an owner’s main home, inherited property, and the transfer of relationship property.
McClay said that did not mean investors who held a property for longer than two years would automatically be in the clear for tax purposes.
“We should be clear that the current ‘intention’ test will remain after the two year period. This means that when someone buys a property with the intention of making a profit they must pay income tax on that gain,” he said.
“The proposals in this bill, together with recently enacted rules requiring buyers and sellers of property to provide an IRD number, and non-residents to also provide the foreign equivalent of an IRD number and a New Zealand bank account number, will help Inland Revenue to better identify investors in New Zealand’s residential property and ensure they pay their fair share of tax on gains from property sales.”
McClay said IRD would be watching transactions and would be able to enforce income tax rules on people who tried to avoid their obligations outside the two-year period.
““We have provided IRD with $29 million out of Budget 2015 to focus on property tax compliance. In total, they have $62 million in funding over five years, which is expected to generate an additional $420 million of tax revenue.
“As a result of this investment, as many as 100 compliance officers will undertake this important work.”