As part of Budget 2015, the Government has passed into law a “bright-line” test for the sale of residential property. The test will require income tax to be paid on any gains from the sale of residential property that is bought and sold within two years. This came into effect from 01 October 2015.
The new bright-line rule requires people who sell residential property within two years of buying it to pay income tax on the sale, unless:
- it’s your main home
- you inherited the property
- you received the property as part of a relationship settlement.
All existing tax rules, for example the “intention test” still apply. The purpose of the bright-line test is to supplement the intention test in the current land sale rules. The intention test makes gains from the sale of real property purchased with an intention of resale taxable.
Business premises and farmland are not subject to this rule.
How clients will return property income?
We will continue to include property income in your tax return. However, we are now required to complete an IR833 Property Sale Information form. This form will be submitted along with your income tax return.
At the point of sale, all non-residents and New Zealanders buying and selling any property, other than their main home, must provide a NZ IRD number as part of the usual land transfer process with Land Information New Zealand.