Anyone who lives in Auckland will be well aware that the Auckland Council is currently reviewing what is called the Auckland Unitary Plan. This is a plan that sets out the future for Auckland and basically governs what can be built where.
What many people don’t realise however is that any changes to the unitary plan could indeed leave taxpayers facing a tax bill when they dispose of land.
Section CB14 of the Income Tax Act 2007 provides that an amount derived on the sale of land will be taxable if:
1 The amounts not already taxable under another section.
2 It was disposed of within 10 years of acquisition.
3 They disposed of it for a gain.
4 At least 20% of the gain arises from a factor, or one or more factors, that are as follows:
a Changes to the rules of an operative district plan under the Resource Management Act 1991;
b The likelihood of such changes;
i A consent granted under the Resource Management Act 1991;
ii A likelihood of a consent being granted under the Resource Management Act;
iii An occurrence of any similar nature to any of these or the likelihood of one of those happening.
What this means in effect, is that if land is disposed of within 10 years of acquisition and at least 20% of the gain made is due to the actual or likely change of the Auckland Unitary Plan, then the whole of the gain is subject to tax. In turn, for each complete one year of ownership, 10% of the gain becomes non-taxable so effectively after 9 years only 10% of the gain is taxable.
The good news is however that there are number of exemptions which do apply, namely:
1 Section CB18 which applies where the person who acquires the land and used it or intended to use it for residential purposes; and they disposed of the land to another person who acquires it for residential purposes. However, there is no exemption for trusts in this provision and as such it will only apply where individuals own the land, not companies as well.
2 In CB22 there is a similar exemption for farm land. This gain applies where the land was acquired by an individual or their spouse or de facto partner for use in a farming business, and it is disposed of to another person for the same use.
Accordingly, care should be taken when selling land to determine whether there is any application of section CB14. Clearly many taxpayers could get caught out unawares. It will be interesting to see what the IRD does and whether it goes on a fishing expedition.