The coalition government recently backed down from introducing a capital gains tax. During the debate and the fallout following the decision, the public and the media rarely mentioned one key detail – we already have one.

The Bright Line rule and land tax provisions already tax those who sell property under certain circumstances. Here’s everything you need to know about the existing tax laws.

The Bright Line rule

The Bright Line rule means that if you bought residential property between 1 October 2015 and 28 March 2018, then sell it within two years of purchasing, any profits you make are taxable, unless any exclusion applies. This tax will be paid at your marginal income tax rate.

If you buy or have bought property on or after March 29, 2018, then sell it within five years of the purchase date, then any profits on that sale are also taxable. This Bright Line period usually starts when the property’s title is transferred to you.

What most investors don’t know is that this rule even applies to properties you have purchased overseas.

 

Exclusions to the rules

Even if the Bright Line rule doesn’t apply to you, you may still have to pay tax on profits from the sale of your properties thanks to the ‘Intention rule’. This means that if you bought residential property with the intention of reselling it for a profit, then that activity is taxable.

If you have a history of buying and selling property, you may also be deemed an ‘property dealer’ by the IRD and required to pay tax on profits from property resales.

The intention rule

Even if the Bright Line rule doesn’t apply to you, you may still have to pay tax on profits from the sale of your properties thanks to the ‘Intention rule’. This means that if you bought residential property with the intention of reselling it for a profit, then that activity is taxable.

There are several exclusions to these rules. The most important one is that the family home, or the main home that you live in, is generally exempt.

With that said, exemptions and the rules themselves may be complex and confusing. To make sure you’re not paying a dollar more tax than you have to (or breaking the law) speak to an experienced property accountant here at PTR soon.