Question

all persons mentioned below are New Zealand tax residents unless otherwise stated. All taxpayers have a 31 March balance date.

QUESTION 1. Tobby has been buying and selling residential houses since 2010 and is regarded as a land dealer for tax purposes. Tobby also owns 20% and his daughter (who is 22 years old) owns 5% of Tobby Rentals Ltd (the balance of 75% is owned by his close friend Fred), a company that invests in residential rental investment properties. In January 2012, the company bought a rental property. In December 2016, the company decided to sell the rental property for a very good price. You are required to explain whether the income from the sale of the property by Tobby Rentals Ltd is taxable income under sections CB 6, CB 9 and CB 6A.

QUESTION 2. Kim is married to Bruce, a property developer. Kim is settlor and trustee of a trust, which owns all the shares in Kim's family company, Guts Ltd. Guts Ltd recently sold a rental property which was bought nine years ago. Is the income derived by Guts Ltd assessable income under section CB 10?

QUESTION 3. Maryanne entered into a sale and purchase agreement on 15 October 2015 to buy a property in Auckland with the intention of providing a home for herself and her children. When she eventually sells it, she hopes to make a gain and leave her children a legacy. The title of the property was registered in her name on 15 December 2015. However, in April 2017, she got a new job in Wellington and entered into an agreement to sell the property on 1 May 2017 to move closer to her new job. Property prices have risen, so Maryanne is able to sell the house for much more than she paid for it. The title was registered in the buyer’s name on 1 July 2017. You are required to explain whether the income from the sale of the property by Maryanne is assessable income under sections CB 6 and CB 6A (show also which dates are relevant in arriving at your decisions). She is not associated with a land developer/divider or dealer or builder.

Answer 1

Q 1. As per section CB 6A, if the residential land is disposed within 5 years from the date of acquisition, the income is taxable under section CB 6A. Section CB 6A apply only to residential land.

Tobby rentals Ltd. deals in residential rental properties and it acquired the land in 2012 and disposed it off in December 2016, which is within 5 years period thus this income is taxable under CB 6A.

Q. 2. Yes. As per CB 10, if the income is derived from disposal of land within 10 years of acquisition, and at the time of acquiring the land, they carried on a business of developing land and dividing it into lots, whether ot not land is acquired for the purpose of the business.

In this case, Guts ltd carries on a business of property development and it sold a rental property within 10 years from the date of acquisition, thus the income is assessable under CB 10.

Q 3. CB 6A-for disposal of residential land within 5 years of acquisition.

Maryanne entered into the agreement for purchase on 15 october 2015 and entered into an agreement to sell the property on 1 May 2017, within a period of 2 years, which passes the bright line test for residential land, thus the income is assessable under section CB 6A.