In recent years, more people have been buying and selling properties. Did you realise income from property sales is like any other income? You need to pay tax on it.
When do you need to pay tax on a property sale? It all depends on your intention when you bought the property. If you bought a property with the firm intention of selling it when prices rise - to make a gain from the increase in its value - the profit is likely to be taxable. This doesn't mean you need to pay tax when you sell the family home. If you bought a property to provide a family home, any profit from the eventual resale will most likely not be taxable.
It usually comes down to your intention when buying a property. A good test is to ask yourself: "What were my reasons for buying this property?"
To work out your intention, Inland Revenue listen to what you say, and they look at your actions. For example, Inland Revenue may look at your history in buying and selling properties, or at statements you made to a bank manager or advisor when you bought the property. Everyone's circumstances are different, and we consider all the facts on a case-by-case basis.
Inland Revenue looks closely at property transactions over the last five years or so, and they have already identified some of the common errors people make. For example sometimes rental investors move into trading and forget to change their tax position. In other cases, sections might change hands before title is issued, without the seller realising - for tax purposes - property also includes a bare section. In both these cases, any profit from the sale of the property is likely to be taxable, if the property was bought with the intention of reselling it.
If someone doesn't pay their tax, we all miss out. The estimated loss of revenue from undeclared property income is more than $100 Million a year - revenue that should benefit the New Zealand community.
If you think you should have paid tax on the sale of a property but didn't, please talk to Inland Revenue or to a tax advisor.