Auckland land owners hoping to see the value of their properties spike as they’re rezoned under the Unitary Plan, might have their capital gains slashed by an unusual tax.
Bell Gully lawyers point out that if you sell land within 10 years of acquiring it, and at least 20% of the capital gain you earn is due to “a change, or a likely change, to the rules of an operative district plan under the Resource Management Act 1991”, you may be slapped with a tax.
The rule falls under the “land provisions” in the Income Tax Act 2007, so gains are taxed as income, and are subject to the normal rates applicable to individuals (top marginal rate 33%) and companies (28%). Some deductions are available.
The tax largely targets developers and investors as sales of residential and farm land are exempt.
“The rule does not apply where the person selling the land acquired and used it (or at least intended to use it) for “residential purposes”, and sold the land to another person who has also acquired the land for residential purposes,” explain Bell Gully lawyers Graham Murray and Hayden Roberts.
“The term “residential purposes” means the use of the land mainly as a residence for the person acquiring the land and members of their family.
So an investment property or a home sold to a land developer would be taxed.
While Bell Gully says there are no obvious ways to mitigate the impact of the law, it notes the rule has only applied to a relatively small number of cases in the past.
Yet with the proposed Unitary Plan before the Auckland Council opening up much more land for intensification, they believe we could see a spike in the number of people caught by it.
The 10 centres that are proposed to be zoned for the most new building across Auckland include Albany, Botany, Henderson, Manukau, New Lynn, Newmarket, Papakura, Sylvia Park, Takapuna and Westgate/Massey North.
Meanwhile Ponsonby, Devonport, Cheltenham, Herne Bay, St Mary's Bay and Parnell are likely to remain largely remain low density, single house zones.
One can’t assume the value of every property that is rezoned from single house to terraced housing for example will increase in value, but it is inevitable this will occur in some cases.
Murray and Roberts say it’s unlikely an event like the release of the Unitary Plan would have been considered when the rule was introduced.
“Given the potential consequences of this rule, there is a strong case for a review of its scope to ensure it operates appropriately having regard to current tax policy settings,” they say.
The more commonly known rules under the Income Tax Act 2007, tax you when you sell land you bought to use for business purposes, or sell land within two years of buying it.
39 Comments
I agree on a tax for non residents. Don't like the term chexit. Sounds racist and has connotations of all the horrible stuff happening in the UK at the moment. We need to be careful NZ doesn't go down that route.
http://www.independent.co.uk/news/uk/politics/racism-unleashed-brexit-e…
Yep. And it's a red herring. No point in getting hung up on any particular nationality just because that's who happens to be dominating at the moment. Even if every Chinese buyer pulled out tomorrow, we'd still be left with the huge gap in our legislation to be exploited by whoever chooses to.
Hardly racist, Space x wants foreign buyers removed from the market. He wants his birthright to be able to live a prosperous life in the country of his birth.
To buy a house in NZ he is currently competing on the world market against foreign investors and speculators. He has been sold out by a government that encourages any one, anywhere in the world to purchase NZ real estate.
Anyone, anywhere in the world can purchase up to 5ha of NZ, no restrictions accept some beachfront limitations and off shore island limitations.
Thats a lot of competition for a Kiwi on NZ wages.
Keep speaking up SpaceX, your generation needs a voice.
https://www.documentcloud.org/documents/2828332-Prs-Property-Transfers-…
Page 9, Figure 4.
The overwhelming source foreign purchasing in Auckland is from one place. If you want to frame the issue as being foreign buyers then the #1 problem in Auckland by a long shot is the Chinese. It is not racist to state the facts.
The lives of young kiwis are being blighted beyond imagination they have every right to be angry.
Numbers again on foreign ownership by specifically the Chinese? Because appearances in auctions represent all the numbers? So only Chinese are not allowed to be investors whereas other races are welcome? Could it also be that the Chinese value houses more than others and are willing to sacrifice more? Just questions out there but don't let these get into your head (ahead of racism).
Pretty sure there you can apply a 10% discount rate to this income for every year the property was held below 10 years. Owners of Land subject to zoning changes should gauge the value prior to zoning and keep the records below the floor boards. You never know when it might come in handy. The future urban zones have tripled land prices in that zone.
Check this out
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=116…
"Flipping insanity: the mad world of Auckland house prices
114,000 Average capital gain per sale
19 per cent Average capital gain per sale
$1600 Average capital gain per day
143 days Average time between sales
More than 1400 of the "flipped" properties were sold twice, 97 were sold three times, seven were sold four times and two were bought and sold five times in under a year."
That's what you get when you have the lowest purchase tax in the world at ZERO Percent. NZ missed on a great opportunity to collect millions in STAMP DUTY.
Only STAMP DUTY ON INVESTORS & FOREIGN BUYERS would reduce this insane investor demand.
15% Stamp Duty would reduce the extremely high percentage of investors from the current level of 46% . Two Huge Benefits
1. Would encourage new supply if you make new homes exempt to encourage Investors to build/buy new properties.
2. Any funds collected would help pay for infrastructure and homes for the homeless.
Your turn John Key
Remember foreign buyers = Non Residents (4%) + Temp Visa workers & Foreign Students (35%)
Foreign Buyers = 39% not the 4% quoted in the Media.
Tax is only so good to slow down the inflation of the property market. People forget tax is only on profit and so long as 30% is taxed at max the developers or investor still have 70% net gain. It is still a bloody good return compared to lots of investment options.
These people who are flipping will/should already be paying income tax on their profits so why would you want to tax them again?
If people doing the flipping are not tax residents of NZ they won't obviously be paying their taxes here but in their tax registered jurisdiction.
Would it not be better to promote a tax system world-wide that the country of origin of earnings gets to tax the income? This would be a fairer system, keep Governments and bureaucracies competitive internationally and better reflects the assets to income reward to the country of origin.
It is not so much about the collection of tax revenue and is more about reducing their demand for housing... investors buying/ flipping houses does zilch to increase house supply and simply makes housing more expensive for those that actually want to live in homes..
The 15% stamp duty on investors would dramatically reduce the number of investors in NZ's housing market probably to single figures from the lofty heights of 46% presently.
Note new homes would be exempt thus encouraging supply and reducing demand. What a fantastic tool.
It is little wonder that Canada (BC) has now introduced a 15% stamp duty tax on foreigners buying their homes.
Stamp duty being charged does nothing to reduce prices it is always tacked onto what the buyers have to pay.
The people on this site that propose it are envious of other people who make money and would never be happy with their own position.
Taxing anyone only increases prices.
That is not true if stamp duty was 15% on Investors and foreign buyers there would be considerably less competition. New housing was exempt so that would encourage investors to buy new.
Less demand same or higher supply equals the same or more likely lower prices. (no longer huge rises)
Why else would UK, Australia, Singapore and Canada bring it in? DO you know something they don't ?
And before you say it hasn't worked the stamp duties in the UK, Australia and Canada targeting Investors or foreign persons have only just come in the last few months.
Doing nothing isn't fixing the problem so now it is time to look at stamp duty 15% on investors and foreign buyers (non-citizens and non-permanent residents) and loan to income ratios 4.5 to 1.
Joe public. Stamp duty has been in Australia for a long time,,with some exemptions and claw backs for first home buyers.
They also have a serious capital gains tax and tax on world wide income
These taxes don't reduce prices and if you do your home work you will see that the major cities the prices are dearer than Auckland, and I Consider Auckland prices are overpriced.
Still consider Christchurch is still reasonably priced but watch this space, the money is heading south.
Sorry the man 2 Australia introduced a new stamp duty on foreign persons for the first time this year.
Yes a stamp duty existed previously however not this ADDITIONAL stamp duty
Canada have only introduced the 15% stamp duty on foreign buyers just recently.
15% stamp duty would decrease demand and prices.
If that doesn't work increase to 20%. Eventually it will drop prices. Illogical to think it wouldn't.
How can a targeted stamp duty increase prices? If your investor, who leads the market, is willing to spend $X on a property and you impose a 15% stamp duty, the investor's bid becomes $X/1.15 and the property is purchased by the next lowest bidder, which is more likely to be someone on whom the extra tax is not imposed.
The Man 2. Yep as their stamp duty was 3% so small . I too wouldn't expect a huge impact
Needs to be large like BC Canada 15%
Stamp duty only effective if at the right level. 15% on average auckland home is 150k . You telling me investors will buy and flip in a year when paying that much tax up front. I somehow doubt it.
The Man 2 you wanted an example look at Singapore house prices. Good example of a government taking the right steps and most importantly acting.
15% stamp duty on foreign buyers . Income to loan ratios. High enough stamp duty level to hit investors and take out Demand.
http://www.bloomberg.com/news/articles/2016-04-01/singapore-home-prices…
Singapore home prices dropped for a tenth quarter, posting the longest losing streak in almost two decades, as tighter mortgage curbs cooled demand in Asia’s second-most expensive housing market.
An index tracking private residential prices fell 0.7 percent in the three months ended March 31 from the previous quarter, matching the longest series of losses since 1998, according to preliminary data from the Urban Redevelopment Authority on Friday.
The residential curbs have included a cap on debt-repayment costs at 60 percent of a borrower’s monthly income and higher stamp duties on home purchases, after low interest rates and demand from foreign buyers raised concerns prices had risen too far too fast.
Home values have dropped 9 percent from the peak in 2013 and sales have since declined to about half the level that year."
So there you have it folks. A quick fire way to sort out the demand and prices once and for all.
Easy to get with the numbers about decreases (but I have no doubt the measures help to cool the market). But let me ask you: what are the median prices for public housing (say a 3-room flat that is on a 99-year lease)? Is that something New Zealand (or Auckland) can accept or want? May also add that these flats were built on the back of compulsory land acquisition (in the 1960s) at below market prices and foreign (read: extremely cheap) labourers from India and Bangladesh. Assuming you put in all the restrictions in New Zealand, I will still make the argument that Auckland's prices will remain cheap compared to Singapore at any price range.
Haven't got a problem if they do impose a stamp duty on foreign buyers as I say, Auckland is grossly overvalued just like major cities in OZ?
The reality is that if a investor gets lumbered with a huge stamp duty cost firstly it will be tax deductable, secondly the investor will charge more for his rental, and there will be consequences if less property is sold due to less work for tradees.
Doesn't particularly worry me due to my personal situation but it will effect some who are highly geared.
Investors can't charge more rent otherwise they would have already based on the fact that House prices have doubled since National took power yet rent hasnt.
If anything it could reduce rent as NEW BUILDS would be exempt so that would encourage new supply.
What we are doing now we can all agree is not working. SO it is time to look what other nations are doing where there are perhaps brighter minds and fewer people in charge with conflicts of interest that don't want this problem fixed.
Canada (BC) have just brought in 15% stamp duty I am sure that will slow things down and perhaps reverse prices.
Singapore has a 15% stamp duty and that has seen a drop in prices by 9% since 2013.. How much has Auckland gained in that same time period ?
Joe, newly built houses won't reduce rents as the owners require some sort of return for their investment.
Personally think that renting out new homes to tenants is a recipe for disaster and return in Auckland will be pathetic.
A new build in Chch in new subdivision is about 700k return would be about 600 per week for 4 bedrooms if you can get it so the return is about 4 per cent after rates and insurance.
Not worth the effort to my mind when I can get between 6 and 10 per cent at the moment with second hand homes, and more with As is where is!
so exactly what value are investors doing buying existing homes ?
Homes are switching from one set of investors to another .... no new houses are created by buying existing homes... just changing the ownership of the homes.. supply needs to be encouraged surely !!!
By buying 46% of the properties investors are just making it so fewer kiwis can buy their own homes and they are increasing the amount of people renting in the system ... and we see this in the home ownership stats...
A great way to encourage supply is to provide incentives for new builds (no stamp duty) and disincentives for investors & foreigners buying existing properties (15% stamp duty)
Note David , Foreigners include Non-Residents and temp residents such as temp visa workers and foreign students.
Time to end this circus and makes our houses our homes.
Has the penny just dropped or are you trying to enlighten those who haven't quite pieced it all together yet?
Note that at the same time they are putting our economy at risk - but oh yeah they're (landlords) providing an excellent service to the community/country. Much like serving the armed forces. Perhaps they deserve medals and an annual day of recognition. What do you think?
Exactly well said... trying to enlighten although it is an uphill battle especially when the people writing the articles are limited by what they can write.
Investors would be providing an excellent great service if they built new homes for tenants however purely buying existing homes and forcing would-be homeowners to rent instead of buying by pushing prices up when supply is so limited is not providing anyone with a service.
Get so sick of hearing about the service they provide.... if anything a lot of them a providing a diss-service as and here is why
- I bet that a large percentage of the 1400 homes that were sold more than once in the year didn't have any tenants in them. As investors buy, put in new carpets, hold and then sell....for on average 125k more than they paid.
- some foreign buyers (non-residents, temp workers & foreign students) are buying homes and leaving them empty as they do not want to deal with tenants. (as seen in the 33,000 empty homes per the census). They are actually reducing the supply of homes available for tenants on the market so further exacerbating the supply issue .
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