Taxation Provisions for Land Transactions in New Zealand

Advanced Taxation
Master of Applied Practice
Course Name: Taxation
Course Code: CISC8805

Table of Contents
Issue.....................................................................................................................................................3
Theory..................................................................................................................................................4
Applicability........................................................................................................................................7
Conclusion...........................................................................................................................................8
References..............................................................................................................................................10

To
Tim Neil and Lacey Neil
New Zealand
Subject: the Provided letter is based on providing advice to Tim Neil and Lacey Neil and their trustees
regarding the concerned land.
Issue
In the concerned case, land attracts three transaction where the probability of point of taxability arises.
Description of these three transactions is as follows:
Transaction first
A land of 3.5 hectares has been purchased by Tim Neil and Lacey Neil in 1985, for the purpose of
farming. The land was purchased at $750,000, and it was raised by bank loan and cash deposits. A
house was constructed in 1986 wherein Neil’s stayed, and the cost of construction was $200,000.
After 12 years, a decision was made by Neil’s that integration of two unrestricted trusts must be done
while transferring the land to the same. SN Trust and LN Trust were the trustees of the trusts. Neil’s
children and grandchildren where were trusts beneficiaries.
Transaction second
The current market of the land before to its transfer was $2.5m excluding GST. This value was used
as a foundation to settle the land to the trust. On settlement, debt acknowledgements were executed by
trusts to Neil, and a gifting deed was prepared by Neil subsequent to this. After two of settling the
land, a resource consent application was made by trusts to subdivide the land. Further the same was
granted after three months which charged $100,000 for the resource consent. Largest slots were
retained by Neil, and other lots were sold to buyers through the secret tender process.
Transaction third
They have been advised by the real estate agent that the trustees must subdivide the other four lots in
fifteen lost due to higher returns. Within 3 months, application of resource consent for the new
subdivision was acquired, because of the high demand for lots. Further Roy White succeeded in
selling seven lots. The remaining market and land lots are put in use of horse grazing.

The issue is taxability provisions of the above-cited transaction to respond to Inland Revenue
Department as under the letter if the voluntary disclosure was made by trusts, then they will be
allowed a reduction in imposed fees.
Theory
In accordance with the taxation provisions of New Zealand profits generated from the sale of real
property is generally not taxable. They are taxable at normal income tax rates only if one or more
following circumstances are satisfied:
 the business of the taxpayer comprise dealing in concerned property,
 the property was attained with the objective of selling the property and
 The profits is derived from the carrying out of an undertaking scheme with the objective of
making profits.
CB7 of the ITA 2007deals with land transaction business of Deals, dividers or dealers of land on the
period of acquisition or related taxpayer. Under this, the acquired land meant for the business purpose,
wherein the question lies with dealer by considering its nature, financial outcomes, transactions
frequency and pattern.
In accordance with the provisions of ITA 2007, tax gains received from the residential land disposal is
disposed from the time period of two years after the date on which the interested person of the land
carries the transaction (Kelsey, 2015). As per Bright line test, this date is earlier of:
 the date whereby an individual makes an agreement on land disposal, or
 the date whereby the land is gifted by the individual, or
 the date on the which land is mandatorily obtained by the Crown or public/local authority.
Along with this, the date of a bright line is the most primitive of the dare land disposal is made by the
mortgage due to the default of mortgagor, if these above mentioned for key categories are not
applicable then the date on which the residential land is disposed on the state or interest.
CB 9 & 10 states that amount received from the land disposal is considered as income if the disposing
of land was done within the time period of ten years of acquisition or from the date the acquisition, or
rated party is conducting the business of trading/developing/subdividing land (Kelsey, 2015). It is
applicable if or if not the land was obtained with the intention of the transaction, development or
subdivision of business.