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16.09.2019 01:50 Age: 2 days

New Zealand consults on abuse of main residence tax relief


New Zealand's tax authority has launched a consultation on tax relief on the proceeds of selling a main home, residence or business premises.

Relief is currently granted unless the taxpayer has a 'regular pattern' of buying and selling land. The Inland Revenue Department (IRD) assumes that such a person primarily acquires that land for sale and should be taxed on any gain, whether or not they used the land as their residence or business premises while they owned it. There is also a cap on how frequently the main home exclusion can be used; it cannot be used where the exclusion has been used by the person twice within the two years prior to the current sale.

However, the IRD now believes this restriction is not working as intended. 'As currently drafted, all of the regular pattern restrictions apply quite narrowly to the activities of a single person', says its consultation document, Habitual buying and selling of land. 'Taxpayers who habitually buy and sell can structure around the regular pattern restrictions.' This can be done by using associated persons to carry out separate transactions, or by varying each transaction so that no pattern is visible to the IRD. For example, the first property could be purchased by one individual, the second purchased by their partner, and the third by their family trust.

To address this, the IRD suggests the law should be amended to ensure that the regular pattern restrictions apply where a person, or a group of people or entities, has a regular pattern of buying and selling land that has either been occupied by the person or group of people as their main home, residence or business premises, or occupied as a main home, residence or business premises by the person or group of people that controls the entity or entities that own the land.

Further, the IRD proposes restricting tax relief more broadly to any pattern of buying and selling land used as a residence or business premises. 'It should not matter whether properties were simply bought and sold, or whether any building or renovation work occurred while the person owned the land. What should be relevant is that there are regular transactions: that is, the transactions occur at sufficiently uniform or consistent intervals,' it says.

It also favours extra restrictions on the number of transactions and the relevant time periods allowed. It suggests a time-period restriction of more than twice in three years might be an appropriate cap on claims for the relief.

Consultation closes on 18 October. A decision will be made in late 2019, and any changes will be included in a Bill in early 2020.

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New Zealand consults on abuse of main residence tax relief