Little-known tax law could hit Auckland landowners

Landowners hoping to benefit from proposed zoning changes under the Auckland Unitary Plan could be hit by a little-known tax law, a top lawyer says.

The provision in the Income Tax Act could mean land that becomes more valuable because of rezoning could be exposed to income tax.

The law applies when a person sells land within 10 years of owning it to a developer or investor and has made gains of 20 percent on the sale because of the changes.

Bell Gully partner Mathew McKay said many sellers could be affected by the rule because the exceptions were narrow.

The rule could also apply in anticipation of the changes, Mr McKay said.

"If 20 percent of the increase in value is attributable to the Unitary Plan then it's a very fair question to ask, well, is that appropriate and is that fair enough in the circumstances, when the increase in value is something of a windfall gain.

"I think what's interesting about it is it's really a pure capital gains tax. I mean, these are only increases in value on capital property."

He said the rule should be reviewed to ensure it fit within current tax policy.

The new recommended version of the development plan, which was put together by an independent hearings panel and released to the public on Wednesday, would see much more zoning for higher density housing in the city.

The Auckland Council must make its final decision on the plan next month.