Photo: RNZ
People who are buying and selling properties for profit are being warned they could get a tax bill, even if they hold the house for longer than two years - and even if they have lived in it themselves.
The bright-line test has now been reduced to two years, which means that investors who hold a property for at least that long are not automatically handed a tax bill for any gains they make on the property.
But tax expert Robyn Walker, a partner at Deloitte, said people needed to understand that did not mean that everyone was automatically off the hook.
Inland Revenue recently released a tool that would help people to understand whether their property was taxable under any of the land taxing rules.
That would include people who bought a property intending to resell it, no matter how long they held it, or had a history of buying and selling that could have them count as a dealer, as well as those captured by the bright-line rule.
As part of that, the department noted that its next area of focus in the property sector would be speculators who frequently bought and sold.
Any property that is bought with the intention of sale can be taxed, irrespective of the bright-line test.
Walker said the department had an information sharing agreement with Land Information New Zealand (LINZ) which would prompt it to contact people it had concerns about.
"They will be tracking the number of sales a particular taxpayer has and will be able to see 'am I developing a pattern where I've sold more than three properties in 10 years'."
Inland Revenue said there was no hard and fast rule about the number of times that people could buy and sell or renovate and sell houses and not be taxed but generally three prior transactions would be needed for there to be a regular pattern.
"The reason or purpose for each transaction is irrelevant - it is the similarity of the transactions that is important."
Walker said Inland Revenue would be able to quickly detect if someone was turning over properties relatively quickly.
"To identify the flippers and that sort of thing. You might have people who are clearly caught under the land rules because they're buying the property with the intention of sale - they're living in it so they might think they have the main home exemption but that gets overridden when you're living in it while doing renovations to flip it on.
"They will definitely detect sales and I believe their new computer system is sophisticated enough that it will figure out connections between taxpayers. If you had a couple that were splitting the property between different names or IRD numbers or putting them in trusts or companies I would expect it would have the analytical capacity to say these interrelated entities are purchasing a property and use that to start information requests."
She said taxpayers would then be asked to provide information to explain why they did not think they were subject to tax.
Even if people held properties for longer than two years, they could still form a pattern that would raise concerns, she said.
"Once you establish yourself as doing that kind of activity the connection will be drawn. The onus is on the taxpayer to prove why they shouldn't be taxable on those transactions."
She pointed to a couple who bought and sold 11 properties over 12 years. "They had all these excuses… there was a creepy guy next door. They had to sell it. They weren't flipping, life circumstances … then they moved to a new house and there was a noisy railway line next to it and then they moved to another house and there was another creepy guy or something and then it transpired that all the houses were all on the same street.
"It was a good example of the kind of things IRD has to deal with when they're looking at these sorts of things. It's a matter of trying to unpick what you're being told and get to the truth of the matter."