Tax Commentary

Context and land generally

The taxation of property transactions has long been misunderstood in New Zealand.

For many decades now, property purchased with an intention or purpose of resale has been taxable when sold.  This provision still exists. 

Some commentators suggest the intention rule ceases to apply after ten years of property ownership.  See for example Ashley Church: “The Bright Line Test and other silly laws” published in January 2021 by internet advertising company Oneroof Limited – refer  www.oneroof.co.nz/news/38928. This is simply untrue

However, historically it has been and remains hard to prove subjective intention or purpose and, other than the most blatant of cases, IRD have been understandably reluctant to judicially challenge using these provisions.

Other land taxing provisions

Irrespective of intention at time of acquisition, there are numerous other provisions serve to include the sale of property as being on revenue account and taxable. 

For example, income from land that is part of the businesses of dealing, dividing or developing land or erecting buildings is taxable, as is land sold within ten years by someone associated with these businesses.  There are other provisions hat can apply, and there are some exceptions. 

Introduction and initial purpose of Brightline Rules

New Brightline Test rules applying initially for two years (land acquired from 1 October 2015) and then five years (land acquired from 29 March 2018) provided some certainty – residential property acquired and sold within these timeframes is now simply taxable – subject to only a handful of exemptions.

This simplicity made it easier for IRD to capture many of those transactions where a purpose or intention for resale often existed, but was difficult to prove.  The measure is blunt but indisputably effective.

But now things have got messy…

Read on “Brightline test getting brighter”

The dating world sure has changed over the years.  Technology is playing an ever increasing part in the process with prospective partners undertaken significant data matching and compatibility testing.

It may not seem overly romantic for some but there appears little doubt the algorithms are viewed by many as at least partially and initially effective.

It is not only the dating world where data and algorithms are becoming commonplace.  Increasing we are also seeing IRD ‘swiping right’ and applying a technological driven approach.  Ever been stalked?

IRD is happy to “date locally” and has been reviewing land transaction records within New Zealand.  IRD picks up property transaction data and often assumes a change in a title means a purchase or acquisition – this includes change in trustees, change in name (eg from marriage or divorce), even subdivision and issuing a new title.  We will be publishing an expanded item later this year.

We have seen clients receive specific investigative/please explain correspondence from IRD in relation to application of Brightline provisions to land they appear to only have owned for a few months based on a certificate of title received after a subdivision, notwithstanding that the underlying undivided land had been held by the same taxpayer for more than 25 years.

Double Tax Agreements have recently been amended to include exchange of information provisions.  Where no Double Tax Agreement exists, IRD is also entering into separate exchange of information provisions.  As a result, the New Zealand IRD enjoys an unprecedented level of cooperation and information gathering with other revenue authorities from around the world. 

We have also seen frequent IRD reviews where existing NZ taxpayers have a foreign banking service provided such as a credit card or similar and IRD proactively seek explanation and confirmation that all foreign income has in fact been returned in New Zealand.

While IRD may have a little way to go yet on the use of technology, we all need to remain cognizant that technology is being used to an ever increasing degree.  It is currently being used to drive audit and review selection and at least initial queries.  Be sure to practice safe tax and engage an expert chaperone!!

In 1789 Benjamin Franklin wrote “….in this world, nothing is certain except death and taxes”.  Since early 2020 the Covid 19 pandemic has turned our world upside down – creating uncertainty at a level most of us have never seen and providing a sobering reminder of just how accurate Franklin was all those years ago.

Since New Zealand’s first (and to date only) national lockdown was mandated in March 2020 we have had many enquiries from prospective clients wanting to return to or immigrate to New Zealand, physically in New Zealand and unable or unwilling to return to their home country, and on rare occasions wanting to leave New Zealand.

Such arrivals and departures often have implications for tax residence, and Covid 19 modifications to residence rules applying sometimes introduces additional complexities.

In the following article we discuss some of the interesting situations on which we have advised.

Read on “Death, taxes and COVID 19”

 “do we really believe the Commissioner isn’t doing this on purpose”

I am sure we are all pleased about the automation of many tax matters. A number of boring aspects of a tax agent’s job have disappeared. Many tasks of yesteryear added little value for clients.

However since the advent of IRD’s new $1.7 billion computer system “START”, IRD has been promulgating a myth that tax is automatic and that instead of engaging an agent or tax expert, taxpayers are better to deal directly with IRD.

Where income is all from paye or NZ interest and dividends, tax can be automated. Those taxpayers don’t have and don’t need a tax agent or other expert.  However other taxpayers’ affairs are more complex and they do need expert assistance. Suggesting everything is automatic is disingenuous and naïve.

Read on “Ready fire aim – IRD bombarding our clients with duplicated and incorrect information”