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Finance Minister Bill English announced the Government is proposing to increase Inland Revenue's resources to target people profiteering out of Auckland's housing market.The announcement hints that the increased funding will be allocated in this month's budget.
Growth in the buoyant Auckland housing market is outstripping the rest of New Zealand. TV shows such as Our First Home and The Block can give the impression that making a killing out of renovating a house will generate a capital gain that is tax free .
Inland Revenue has a Property Compliance Programme (PCP) which identifies property sales where income tax should have been paid, but was not.
The PCP's investigation and enforcement activities netted additional tax of $53 million for the year ended June 2014. This is a lucrative return on the government's annual investment of $6.65 million in the PCP.
Some believe that New Zealand's absence of a formal capital gains tax steers investors towards property rather than more productive forms of investment. While New Zealand does not have an explicit capital gains tax, there are a number of situations where the gain from a property sale is taxed.
Two common scenarios where profits will be taxed are where the seller purchased the property with the intention of reselling, and where the seller carried out certain property development or was associated with a developer at the time of purchase.
Some taxpayers believe they will not be taxed if they limit the number of property transactions per year. Some also believe that by residing in the property they will be exempt from tax. Another common misconception is that holding property for a minimum period of time will result in a non-taxable gain.
GST on land sales is another minefield for taxpayers and a goldmine for Inland Revenue's PCP. It is important to get sound advice on the GST implications in these situations as the dollars involved can be significant.
It appears that it will take more than just taxing property gains to dampen Auckland's soaring house prices.
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