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The taxation of land transactions is a
reasonably complicated area of New Zealand law. While it is generally
thought that there are no capital gains taxes in New Zealand, this is
not entirely correct.
New Zealand farmers have enjoyed and in fact have relied upon the
capital appreciation of their land as a major source of return on
investment. Farmland of all kinds has increased in value between 8% and
12% per annum depending on the cycle, over a sustained period of time.
This capital appreciation is tax free.
One clear exemption from the rules relating to subdivision of farmland
and the sale of farms in whole lots, is that if the land is sold for
farming, the increase in value is not taxable. If farm values increase
at 10% per annum, on a compounding basis, every seven years farm values
double.
The following are the broad categories under which income tax may be
payable on the subdivision of land including farmland, they are:
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Where the
land has been purchased with a clear intention of subsequent sale.
This does not mean a sale at some future undetermined point, as all
properties are sold eventually.
-
Where the farmer is a dealer in land,
ie, where the farmer has formed a pattern of buying and selling farms.
-
Where the farmer is a developer/subdivider
of land and acquired the land to develop it and wishes to subdivide
within 10 years of ownership.
-
Where the farmer erects buildings as a
business and the land acquired for that purpose is sold within 10
years of the buildings being erected.
-
Where farmland has been rezoned or any
resource consent issued increases the farmland value by 20% or more.
This may occur where farmland is adjacent to a residential area and
the farm is rezoned residential. The rule does not apply if the land
is sold 10 years after the zoning or the farm is sold with no profit.
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Where
there is a scheme of subdivision undertaken within 10 years of
ownership on the farmland and the work is not of a minor nature. If
the lots are not economic units, then the sales would be taxable.
There are some broad exemptions:
-
Where the land has been purchased with
a substantial business and residence on it, and is subdivided (and
sold); but the total area is not more than 4,500 m2, ie, one of a
number of titles.
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Where the land is farmland and is sold
for farming
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Where the land that is owned for less
than 10 years is subdivided, but the development work is of a minor
nature.
-
Where the land is owned for more than
10 years, then certain valuation rules apply.
Please refer to our
disclaimer.
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