Is selling your home taxable?, Or in other words, do you have to pay tax when selling your home?
Buying and selling your private or family home typically is not taxable. However some are looking to purchase a family home with the intention of reselling it in time, and a few earn their income this way – buying and selling.
If you have established a pattern of purchasing and then selling your “family home,” this could be considered as property speculation or dealing for tax purposes.
So, how do you know whether you are considered a property speculator, dealer or investor? Click here for the IRD definition
Things to consider in answering the above question:
How do you know if selling your home will be taxable? Think carefully about the answers to these five questions.
“Ok, so I just have to hold onto a property for a really long time and then I’m not considered a dealer?” No. The amount of time you hold the property is immaterial. It’s your intention at the time of acquisition.If you bought a property with the intention of reselling it, then any capital gain that you make on the sale taxable.
“Right-o. So, is there some sort of level? That is, my first couple of properties are tax-free and then I pay tax after that?” Ahhh… no. Again, it’s intention, patterns and associations – not numbers of properties sold.
“Great. It looks like I will have to pay tax then. How do I figure that out?” The IRD have a great resource here – or you can contact us.
* For a definition/more info please see this article at the IRD Tax Policy website
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From the 2018 income year (that is, 1 April 2017 onwards), the safe harbour threshold has been increased! Hooray, I hear you say. It's gone from $50,000 to $60,000. It has also been extended to non-individual taxpayers e.g. companies.
What does this mean? Use of Money Interest (UOMI) will only be payable from terminal tax date* for natural persons and non-individuals where their residual income tax liability is less than $60,000 and the following requirements have been met:
The taxpayer must have:
There are a couple of other points: The requirement that they must not have held an RWT exemption certificate at any time during the year has been removed. Oh, and there is an anti-avoidance rule as well, so that you can't manipulate your incomes to fall within the safe harbour provisions.
* Terminal tax date is either 7th February if you do not have an accountant or tax agent OR 7th April if you have an accountant or tax agent who has an extension of time on your behalf.... more info
# Standard method is last years residual income tax + 5%, OR your residual income from two years ago + 10% (only if you haven't filed last year's return yet)... more info
You might have noticed that things are taking a little longer to process, both at EpsomTax.com and at IRD. We have entered the middle of the year slow-down. What is it? Well, it doesn't mean we are putting our feet up. Far from it! Rather, it is when the bulk of clients have their work with us (no matter how we try to spread things out), so there is an inevitable hump to get through.
Please be assured we are working as fast as possible, and yes, we have taken on extra staff to cope with it! We apologise for the delay!
If you would like to discuss, or have concerns, please contact us
Why is a chattels valuation necessary?
Typical valuations assign a valuation to chattels of $10-15,000. However, they often miss many depreciable items, such as driveways, fences, decks, paths, hot water cylinder, letterbox, garage door motor etc.
When you obtain a chattels-specific valuation, typically the value of the chattels for a new home is $45-50,000+ and for one built in the 1980’s $25-30,000. Even if your chattels valuation comes out at only $30,000 then the value for the tax refund will be around $10,000. The higher the chattels value, the more depreciation can be claimed, which means less tax to pay or larger tax refunds.
Are there any exceptions?
The only exception to the chattels valuation, is if it was a rental already owned by you or another entity you controlled, and you had already filed a tax return for that property at least once. In that case, we can’t “re-value” the chattels.
What will it cost and who does this?
We know of only one firm: ValuIt. Visit their website www.valuit.co.nz or call 0508 482 583 to book a valuation. Please note, we receive no financial incentive or otherwise for recommending them. However, we encourage you to do this without delay, as they are very busy and it can often be 2-3 weeks before someone can get to see your property.
Depreciation: Simple Overview (video)
6 Minutes on Depreciation (video)
Depreciation Clawback and Your Rental Property
Depreciation of Chattels in Your Rental Investment Property
Valuation of Chattels - Why Necessary
First, open your sheet on your iPhone or iPad.
Next, touch the three dots at the top right-hand corner
Then, choose Send a Copy
Lastly, email to us or share to your Google Drive or Dropbox.com, then share to firstname.lastname@example.org
If you have to pay provisional tax, then there is a good chance you're using tax pooling, courtesy of Tax Management NZ (TMNZ).
We've collected a few common questions here to help. If your question is not here, please contact us.
Why Is IRD Contacting Me About Overdue Tax If I'm Using Tax Pooling?
Q: IRD are calling and texting me saying my tax is overdue?
A: Correct. This is to be expected. IRD have no visibility of what money you've deposited into the Tax Management NZ tax pool until it is actually in the IRD bank account.
Q: So what do I say to IRD then? I'm a bit freaked out by this!
A: Here's what to say:
How Do I Know the Money Will Actually Get to IRD?
You make your payments into a bank account administered by an independent trustee, Guardian Trust. Guardian Trust also oversees the TMNZ tax pool account at IRD in which your date-stamped payments are held. At no stage does TMNZ have access to your funds.
You can view your account online and request that any amounts held in the tax pool be transferred to your IRD account at any time.
More Information/Arrange My Tax Pooling
Tax Return Filing Dates
Q: When does my tax return have to be in i.e. filed with IRD?
A: If you have an Extension of Time to file, the date is 31 March. If you are linked to a Tax Agent or Accountant, then usually you will have this extension. Note that the IRD must receive your tax return by this date i.e. if you post it on this date, it will be late.
Q: Cool, so I can send my info to you guys about the middle of March and that will be ok then? That gives 2 weeks to get it sorted, right?
A. Sorry, but no. In order to get the figures right, there is a process of many eyes checking your financial statements/tax return/s. So we recommend that you allow 8-9 weeks at least for us to collate, code, compile, check and file your financial statements and tax returns.
Q: I didn't earn any income last year, but I am a shareholder in a Look Through Company. Do I have to file a tax return?
A: Yes. You will have income or loss from the LTC and this has to be declared to Inland Revenue via a personal tax return.
Q: I don't see any impact of the LTC losses to the final tax figure?
A: You'll see your LTC losses (if applicable) shown in box 19E (on the personal tax return, or IR3).
How Do The Amounts On The Profit & Loss Relate To My Tax?
Here is a typical Profit & Loss report. You can see the Profit hi-lighted in yellow, and the Expenses hi-lighted below (also in yellow). Then at the bottom, you can see that the result is a Loss - which is why it is written in parentheses (brackets).
This loss amount (or negative amount) is then put on your tax return. It offsets other income you have received. In this sample, assuming the person is being taxed at 33c in the dollar (ie they earn over $70,000 per year), then they could expect a refund of about $3,500.
How is the Tax Calculated?
All sources of income are added, e.g. wages, interest, dividends. Next, all sources of loss are added, e.g., LTC losses. Then tax is calculated on the sum of all of these figures. After that, tax that you have already paid is deducted, e.g., RWT, PAYE, provisional tax. The resulting figure is either a debit (tax to pay) or a credit (a tax refund).
Dividends - AECT/Entrust
Q: Why does the IR3 (personal tax return) you sent me show a dividend of nearly $500 from Entrust (formerly the Auckland Electricity Consumer Trust or AECT)? I only got about $300-something?
A: The Entrust dividend is shown on the tax return as follows
Using this formula, we arrive at the $300-something you received. You can see the exact breakdown here
Q: Why does the tax return show this? I wanted the refund to be credited to my bank account?
A: That's exactly what this means. It says, in effect: "do you want to receive the refund in cheque format?" The answer is "No." IRD only gives one other option, and that is a refund to your bank account.
Q: Does my LTC get a refund as well as me?
A: No. If you have an LTC, the refunds go to you. The company is Looked Through at tax time, hence the name Look Through Company.
Q: Is the amount shown as a refund what we're going to get?
A: Probably. All returns filed are subject to review by IRD, and sometimes they don't agree with our calculations. There are a number of reasons for this:
However, don't panic. All errors, wherever they are made, can be easily rectified.
Q: What's an IR3 form? How long does it take to file a return?
A: That is what the personal tax return form is called: an IR3. (If you are not NZ tax resident, the form is an IR3NR). The actual filing online takes about half an hour. Then IRD processes it, which can take anywhere from 1 week to 12 weeks or longer. Once they’ve processed it, you then receive your tax refund.
These questions are basd on questions asked by customers. We'll be adding more examples to this page as they occur.
Other FAQs you might have:
RENTAL PROPERTY: WHAT RECORDS DO YOU NEED TO KEEP?
USING ACCOUNTANCYONLINE.CO.NZ/MY TAX QUESTIONNAIRE
HOW DO I DOWNLOAD TRANSACTIONS FROM MY BANK'S ONLINE INTERNET BANKING?
WHAT IS XERO.COM?
WHAT'S THE PROCESS FOR MY TAX RETURNS?
COMMON QUESTIONS ABOUT YOUR FINANCIAL STATEMENTS
You might have noticed that your invoice is a little bit more this year. Why?
Did you buy another investment property during the year? If so, that requires a bit more work to account for that, usually a couple of hours.
It might be a price increase. We haven't raised our prices in 3 years; meanwhile the CPI has gone up, and up. So we adjusted the base price by 2.8%. This is actually less than inflation, so doesn't really reflect the eroding dollar. We've absorbed some of that cost ourselves.
At the same time, accountants from this year onward will be required to comply with new AML legislation, which we estimate will add at least 1-2 hours per year to costs. However, we can't charge all that time. So we've added $55 to try and offset that cost a little bit.
We think this is fair/reasonable, but if you have any concerns, please contact us.
Accounting for your rental residential investment property; general taxation advice.