Land acquired for a purpose or with an intention of disposal
On 25 February 2016, Inland Revenue released draft Question We’ve Been Asked PUB00260: “Income tax — land acquired for a purpose or with an intention of disposal” for consultation.
The item is about s CB 6 of the Income Tax Act 2007 (acquisition of land with a purpose or intention of disposal) and discusses when s CB 6 will apply. The item considers that if land is bought for a purpose or with an intention of selling it, the proceeds of the eventual sale, whenever that occurs, will be income under s CB 6 unless one of two exclusions apply. The exclusions are as follows:
Exclusion 1 — residential land (s CB 6): If the land has a house on it, or you build one, and you occupy the house mainly as a residence, you will not be taxed on the proceeds from selling the property. This also applies if you are a trustee of a trust, and a beneficiary of the trust occupies the house mainly as a residence. Note: This exclusion does not apply if you have a regular pattern of acquiring and disposing of houses, or building and disposing of houses.
Exclusion 2 – business premises (s CB 19): If the land is the premises of a business, and you acquired and occupied the premises or built and occupied the premises mainly to carry on a substantial business from them, you will not be taxed on the proceeds from selling the property. Note: This exclusion cannot be used if you have a regular pattern of acquiring and disposing of, or building and disposing of, premises for businesses.
The item also confirms that the two-year “bright-line” rule is in addition to the other land sale rules that have been in New Zealand’s tax law for many years. The 2-year rule is aimed at being easy to enforce, by removing the need to determine what a person’s purpose or intention was if they sell residential land within two years of acquiring it. But if the 2-year rule does not apply, the proceeds from selling land can still be taxed under one of the other land sale rules, including the purpose or intention rule.