If you're buying residential property, make sure you know what your tax obligations will be when you come to sell the property.
Intention Rule: Nearly everyone buying a property will sell it at some stage. However, this alone isn't enough for any profits to be taxed. In most cases you don't 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.
The Bright-Line Property Rule: The bright-line property rule looks at whether the property was either:
purchased on or after 1 October 2015 through to 28 March 2018 inclusive, and sold within 2 years
purchased on or after 29 March 2018 and sold within 5 years.
Generally, the bright-line period starts on the date the property's title is registered with Land Information New Zealand (LINZ) and ends when you enter into a Sale and Purchase agreement.
If the property is in another country, the bright-line period starts on the date the transfer was registered under that country’s laws.
The bright-line period for properties purchased 'off the plans' where the title has not yet been issued begins when you sign the agreement to purchase the land.
Selling residential property after the bright-line period ends: If you sell a property outside the bright-line period, the bright-line rule will not apply to the sale. But the intention and other property sale rules will still apply. Anytime you purchase property with the intention of selling it for a profit you must pay tax on the profit unless an exemption applies.
Source: IRD
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