Residential property taxation

If you’re buying residential property, make sure you know what your tax obligations may be when you come to sell the property. There are various items to consider when buying and/or selling. 

  • Your history of buying and selling counts (is there a pattern forming?) 
  • The intention rule (did you buy with a resale intent?) 
  • The bright-line rules (are you selling within the relevant bright-line period?) 
  • Resident Land Withholding Tax (RLWT)  
  • Main home considerations
  • If you’re a dealer, developer or builder (or associated to one) 

We’ve explained two of these items below, and it is always best to check with your tax advisor, particularly when you consider the large amounts of money involved – better to spend a little up front, than to suffer the consequences in time and money later. 

The intention rule 

It’s usually your intention on the date that you enter into an agreement to buy a property that matters. Nearly everyone buying a property will sell it at some stage. However, this factor alone is not enough for any profit on disposal to be taxed. In most cases you do not have to pay tax when you sell your main home or if you can show that you bought the property as a long-term rental investment. 

You need to think about what your intentions are when you first agree to buy a property. What you intended to do will then likely 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 few reasons for buying. For example, if one of your intentions when buying is to renovate the property to increase its value to sell, then even if it is rented for a short period time, you’ll still have to pay income tax when it’s sold.  

This intention rule has existed for many years, and while the onus has always rested with the taxpayer to prove what their original purchase intent was, Inland Revenue have perhaps shied away from enforcing this rule more than they needed to. The introduction of the bright-line rules in October 2015, has certainly put the intention test to one side, due to the fairly black and white draconian application of the bright-line test. 

The bright-line property rule 

If you sell a residential property you have owned for less than 10 years (where first interest in the land post 27th March 2021), then you may have to pay income tax. This is the bright-line rule, and it applies to land owned both within New Zealand, and for New Zealand tax residents, land owned overseas as well. 

For bright-line tax purposes, the bright-line period usually commences when the title to the land is registered in your name. The relevant end date to determine whether or not your disposal may fall within the bright-line period, is usually the date you enter into a binding agreement to sell the land.   

While the bright-line period is now 10 years, it was originally 2 years when the rules were introduced effective 1st October 2015, and then increased to five years from 29th March 2018. Note in this regard, to determine the correct bright-line period for your land, the rule changes from the normal date of registration of title, to the date you first acquired an interest in the relevant land (usually date of signing a binding agreement). So as an example, if you signed the agreement on 1st March 2018 but settled on 30th April 2018, your first interest in the land was 1st March 2018, and consequently the two year bright-line period applies to the land – not the five year period applying at the date of title registration (settlement date).  

While most people automatically think about bright-line when they go to sell, there are actually a number of other land taxing provisions that exist in a designated pecking order prior to bright-line. In this regard you can read more about the ‘Disposal of Land – to be taxed or not to be taxed?’ in Richard’s series here:

  1. Income tax imposition upon the disposal of land.
  2. Minor subdivision rule
  3. Disposal within five years: bright-line test for residential land 
  4. Disposal: amount from land affected by change and not already in income 
  5. Disposal: amount from major development or division and not already in income 
  6. Disposal: those who may be carrying on a business of land dealing, land development and/or subdivision, or of erecting buildings

If you would like to talk with us about these topics, please fill in the form below, or get in touch here.

  • This field is for validation purposes and should be left unchanged.
As a client Gilligan Sheppard you will have access to international networks and resources to enable optimal outcomes for your business / trust / transaction. xero logo It’s small business accounting software that’s simple, smart and occasionally magical. Log in online anytime, anywhere on your Mac, PC, tablet or phone to get a real-time view of your cash flow. 
As a client Gilligan Sheppard you will have access to international networks and resources to enable optimal outcomes for your business / trust / transaction. tax traders logo Tax Traders allows you to buy someone else’s tax to settle your account with Inland Revenue, as well as save on interest and late payment penalty charges.
As a client Gilligan Sheppard you will have access to international networks and resources to enable optimal outcomes for your business / trust / transaction. smart ar logo Astute cash flow management is essential for operating a small business.
As a client Gilligan Sheppard you will have access to international networks and resources to enable optimal outcomes for your business / trust / transaction. myob logo Trusted by 1.2 million businesses, myob is New Zealand’s largest accounting solutions provider. The platform is equipped to support the needs of New Zealand organisations.
As a client at Gilligan Sheppard you will access to international networks and resources to enable optimal outcomes for your business/trust/transaction.  accountancy insurance logo Tax Audit Insurance specifically designed for accountants in public practice. This provides cost effective protection and peace of mind against the substantial cost that may be incurred should IR or other government authorities conduct a random review, investigation or audit.
As a client Gilligan Sheppard you will have access to international networks and resources to enable optimal outcomes for your business / trust / transaction. cpa logo A CPA is a finance, accounting and business professional with a specific qualification. It indicates a soundness in depth, breadth and quality of accountancy knowledge and gives you competitive advantage over your peers.
As a client Gilligan Sheppard you will have access to international networks and resources to enable optimal outcomes for your business / trust / transaction. agn international logo AGN International is a worldwide asociation, composed of four regions, of independent accounting and advisory businesses.
2022 Marketing To-do List
It’s on everyone’s lips, “Let’s hope that 2022 is better”. Lockdowns and levels (and now lights) brought obvious change to business, and the New Year often brings a fresh perspective on [...]
Perspective is power
One person will see the Willow tree as protection from the sun, another, will see the shade it provides as cold and unwelcoming. Another will see the Willow tree as an obstacle in their way, yet one [...]
Some life changing finds
Every year I stumble across a whole lot of cool new things – books, apps, music, websites. They make life a little easier and/or a little more interesting. Sometimes I find things that are [...]
The journey from caring to intolerance
You might ask, “Wtf, what has triggered Bruce to rant about this topic?” It’s simple really, a minor event that no one should have even had a second thought about, as the action and reactions [...]
One-sentence-story
A tale of change and adaption. In March 2020 the world changed. Many thought it would revert quickly to life as it was before and that our behaviours would also revert to what we were used to and [...]
Interest deduction limitation rules: update
In our June newsletter I wrote an article that ‘attempted’ to explain the Government’s proposed new interest deduction limitation rules, which were to have an effective commencement date of [...]
Working from home reimbursements
Covid has changed the landscape of our world. Our everyday living situations, from how we interact with other people, to how we run our businesses has changed in an all-encompassing way. I could [...]
Travel is my sanity
After five weeks of level-four lockdown, followed by seven weeks of level-three, I was asked to write an article for our newsletter. To be honest, I couldn’t summon enough positive energy to write [...]
Richard’s September-October 2021 tax updates
Richard has had over 30 years’ experience with New Zealand and International taxation. His team provide services including: Q&A service for accountants Tax opinions IRD risk reviews and audits [...]
Grow your business in lockdown. Part four of four.
Webcam selling confidence Our marketing team have collaborated with Ambrose from the Sales Mastery Company to create webinars to help small to medium businesses survive lockdown. View the fourth [...]

Click here for details.

We are recognised as authorities in our specialised fields. We publish newsletters with informed opinions that are free for you to subscribe to.

Click here for details.

We are recognised as authorities in our specialised fields. We publish newsletters with informed opinions that are free for you to subscribe to.