How does tax affect you as a property investor?

With a wider capital gains tax off the agenda (for now anyway) it’s a timely reminder that there are existing tax implications for property investors, depending on their situation. Here, we look at two reasons for investment property ownership, and what taxes might apply.

Property investors who buy for capital gains

Whether you will need to pay tax on your property depends on a number of factors. The first factor is ‘intent.’ If you purchase a property intending to sell it to make a profit, it is likely you will be subject to tax on that profit. However, any tax implications are also subject to the following considerations:

  • Your history of buying and selling. If you are deemed to be a property dealer, then you are likely to be liable for tax – even if you are selling your family home.
  • If you’re a dealer, developer or builder. It is likely taxation obligations will apply to you.
  • When you buy and sell property. Generally, any property that is bought between the first of October 2015 and 28 March 2018 and sold within a two-year period, will be liable for tax on the profit. Tax rules changed in March 2018, and if you sell any property bought after 1 October 2018 within five years of purchase, you are likely to be liable to pay tax on profits.

If you are a property developer, there may be other situations in which you are liable for tax, or situations in which any exemptions or exclusions won’t apply to you. We recommend you talk to a specialist tax adviser, to make sure you aren’t hit with any nasty tax surprises.

Property investors who buy rental properties

As above, if you buy a house with the intention of holding on to it, and don’t sell within five years of purchasing it (if bought after 1 October 2015), you are unlikely to have any tax applied to the capital gains you make.

However, there are other tax obligations with a rental property. Under New Zealand tax law, you are liable for tax on any income you earn. While there are deductions allowable for a rental property, if you make a profit, you will need to pay income tax.

The bottom line…

With capital gains tax off the table for now, you may be breathing a sigh of relief. However, just remember that tax still applies to income and profits, depending on your situation. Make sure you know your obligations, before buying and selling investment properties.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek advice from a financial adviser.