New rules to tax land sales where there is a regular pattern of sales

New rules to tax land sales

Our latest Taxmail commentary on the new rules to tax land sales.



Darshana Elwela

Partner - Tax

KPMG in New Zealand


Click here to read a consultation document on the rules for taxing land. The document proposes the sale of a person’s main home or business premises can be taxed where there is any pattern of buying and selling land.

residential housing

The issue

Earlier this year, in its response to the Tax Working Group’s final report, the Government ruled out a comprehensive capital gains tax, as well as a more targeted option for land. However, Officials were asked to look at whether the current tax rules for land were working as intended.

The sale of a person’s main home is not subject to tax under the 5 year bright-line test. The residential and business premises exemptions apply to certain other land taxing provisions. However, these carve-outs are not absolute – they do not apply where there is a regular pattern of selling activity.

Officials’ concern is that even if there is a regular pattern of buying and selling land, the sales remain exempt if there are different activities. An example:

  • the first property is bought, lived in and sold;
  • the second property is renovated while lived in and then sold;
  • the third is bare land, a dwelling is constructed, lived in and then sold.

Although there is a regular pattern of buying and selling, the activity on the land is different each time. The exemptions continue to apply. 

What's changing?

The broad proposal is that:

  • Any pattern of selling activity would be sufficient for the residential and business premises exemptions to not apply, or for the relevant land taxing provisions to apply, if there are sufficient “regular” transactions (i.e. the transactions occur at consistent intervals).
  • This test would also apply to any land sales by “associated persons” (either people or entities), where the relevant land has been occupied by the person or their associates (and in the case of an associated entity, by the entity’s controlling person(s)) as their main home, residence or business premises.
  • The time period restriction in the main home exemption from the bright line test (where the exemption cannot be claimed more than twice within two years) will also be extended to the residential premises and business premises exemptions. 

An initial view

The Tax Working Group’s work may have concluded without its key recommendation being taken up, but the focus on land continues. In this case, the focus is the owner occupying the land. The “own use” (to live in or to operate a business) exemptions are not intended to apply where a taxpayer “flips” property on a regular basis. However, due to a narrow interpretation of what constitutes a pattern of activity, the exemptions apply. The proposal is to change this result.

Officials’ expectation is that property that is not acquired with the intention of disposal should not be caught by the revised pattern of activity test. This is an important caveat. The proposal is to remove an exemption from the existing land tax rules rather than to create a new rule based on a regular pattern of buying and selling. However, the risk for taxpayers is that the rule will be applied by default to tax sales where there is a regular pattern.

The proposals have wider impact than just residential property. They also apply to businesses that own their premises. For a corporate group that owns multiple properties (that is used in the business), the ability to rely on the business premises exemption for the sale of an individual property will need to be tested against associates’ activities. 

For further information, please contact Darshana.

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