There will generally come a time when you and your family will consider packing up and moving on. Whether your family requires more space, an exciting job opportunity arises, an unforeseen reason or simply wanting to cash-in on your investment, there are many factors that may cause you to consider selling.
Whatever your reason for sticking up the For Sale sign, the decision shouldn’t be taken lightly and there are a number of factors and obligations that will affect the selling process. It is important to understand your obligations and know that once you do sell and make a profit on a property, the tax man will not be far behind.
Our advisers have helped thousands of Kiwis understand what their tax obligations are when they buy and sell their property. If you have any questions, don’t hesitate to contact us for some friendly free advice.
What were your intentions?
Was the house meant to be your dream family home, a new addition to your growing property portfolio or purchased to renovate and sell quickly? Regardless of whether you intended to eventually resell or for the house to be your long-term family home, your intentions are critical.
If the property was purchased solely as an investment, with the intention to resell in the short term you will be required to pay tax on any profit generated. If the property was purchased as a long-term hold for more than five years then your tax liability will be dependent on what other property activity, if any, you undertake. If you also trade properties then you need to keep your hold properties for at least 10-years otherwise you will be liable for the tax on any capital gain.
However, if your intention was for it to be your long-term family home, then in most cases, you will not be required to pay tax on the sale provided that you are able to prove that the house was your primary place of residence for over half the time you owned the property.
Your initial intentions for the property when you took over ownership of the title and your living habits will dictate the amount of tax you’ll be required to pay once sold.
If you purchase a property (excluding your family home) and resell it within five years, you will be required to pay tax on any profit made. Previously the bright-line test was only valid for properties re-sold within two years of purchase but the government is now in the process of extending this to five years.
The bright-line test was created to reduce property speculation and make entering the housing market more affordable and accessible. The bright-line test covers a five-year period from the time you take title ownership to the time you enter into a contract to sell.
You may have access to a bright-line test exception if you can prove that the house was your primary residence for over half the time you owned the property. As a result, you will not be required to pay tax on any profit you make from its resale.
What’s your buying and selling history?
If you have an extensive history of property investment you need to understand the tax rules around shorter-term property trading, long-term holding and your liability if you do both.
It is important to understand if you are classified as a property trader by the tax department. If you are unsure about your status, our experienced advisers will be able to explain your status.
Are you selling a property as part of a business?
If your business is affiliated with the housing market, you’ll be required to pay tax on any sale of property that’s connected to your business. This is regardless of initial intention or length of ownership.
If you are associated with the property industry, there are also extra tax regulations to be considered if you sell a property or land within 10-years of purchase. For example, if a property has had building work or improvements made on it, you will be liable to pay tax on any profit generated from its sale. Regardless of whether the property was part of your businesses portfolio or not.
If you have retired or left your previous industry and intend to sell the properties associated with them, you will still be required to pay income tax on their sale. If you are unsure if this affects you, our advisers are able to provide sound advice regarding your obligations.
Regardless of whether you’re selling the family home or an investment, understanding your tax requirements will save a lot of hassle and will protect you from any nasty surprises. If you’re intending to sell your house and are unaware of where you stand, then contact us today and our trusted and friendly advisers will be able to guide you through the process.
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