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3 times you’ll have to pay more tax when you sell

By Craig Catley

The tax man has an uncanny knack of showing up at the most annoying times – like when you're selling your North Shore property. With QV figures showing local prices up 11.2 per cent year on year and 85.5 per cent higher than they were in 2007, a lot of people will be thinking about selling and recording a tidy profit.

However, the tax man will come knocking if you are selling in a few particular situations.

1) If you always intended to sell

Selling real estate is usually a given. As families grow or shrink, tastes in real estate develop and financial situations change, we often find ourselves in a position where selling and relocating is the best option. In these situations, you should not have to pay any tax on your sale.

When is a property sale subject to more taxes?

However, if you buy a property with the express intention of selling it for profit, taxes can apply. As the IRD notes, the intention to sell doesn't have to be the only reason you bought, or the primary one. If it's part of your motive for buying, then income from the sale will have to go down in your tax return.

This doesn't apply to buying a home to live and thinking that selling for a profit down the line would be good – it's when resale is a definitive end point of your purchase. Talk to your real estate agent if there's any confusion. 

2) When you are (or are associated with) a property builder or dealer

A property dealer is someone who trades in real estate – buying and selling as a form of income. If this is you, then anything purchased as part of your ongoing business will be liable for taxation whenever it is sold. This even applies once you leave the industry – if it was purchased less than 10 years ago and you were part of the industry then, it's taxable.

Unfortunately for many, this also extends to association with these industry bodies. Associations that fall under this category include:

  • Partners (including de facto relationships),
  • Parents and children,
  • Co-trustees,
  • Business partners,
  • Associated through a third party,
  • Associations that aren't at arms length ("mates rates" associations).

Associations with builders and dealers that impacted your purchase or construction of real estate mean that if you sell within 10 years, you will have to pay tax on the profits.

3) You buy and sell in a short time frame

Sometimes, circumstances change quickly – you might seize a new financial opportunity, or the market may turn and you decide selling assets is the best way to go. Unfortunately, even if you didn't intend to sell a property when you bought it, selling within two years of purchase automatically makes you liable to pay tax.

As the IRD notes, there is no exclusion for selling property you received through the dissolution of a relationship. There are, however, some exceptions to this rule: If it was your principal place of residence, you received the home through an inheritance, or if you are the executor of someone's deceased estate. If it ends up selling at a loss, you can receive some taxation benefits relating to the amount you lost.

Making the most of a North Shore sale

As you can see, for some people it's difficult to sell without paying a hefty sum of tax. While there may be no way of avoiding this, you can at least make sure you get your money's worth out of a sale. That's where the team at Ray White Takapuna can help.

We're an energised, modern team of professional agents that excel at presenting your home at its best. No matter why you want to sell, we can make it happen on your terms. For more detailed advice, ensure you speak to your accountant.

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