Capital gains tax

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7 years 11 months ago #37972 by kai
Capital gains tax was created by kai
I do wonder about what qualifications you need to answer the phone for the IRD. I rang up with a general enquiry about capital gains tax. the conversation went a bit like this.
IRD: what is your enquiry about?
Me: capital gains tax
IRD: Is that the name of the company?
Me: no it is the name of the tax
IRD:what is the tax for?
Me: if you buy a property do it up and sell it at a profit
IRD: What was the name of the tax again?
Me: Capital gains tax
IRD: One minute I have to put you on hold
IRD: we can't give you any advice about that, you need to talk to your accountant
Me: not even what the tax rate is?
IRD: No.

So given that the IRD is useless on the subject but will be happy to take my money. Anyone got any experience at this? Yes I have an accountant and have emailed him for advice, but no doubt someone out there also has knowledge until he gets back to me.

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7 years 11 months ago #490603 by Andrea1
Replied by Andrea1 on topic Capital gains tax
Yeah, IRD. I was on the phone with them this morning, and I was obviously speaking with a trainee, as she put me on hold every 5 seconds to 'check this detail with my manager'. I don't mind dealing with trainees, but shouldn't they having a little training before actually taking on the public and having a hold time of '30-47 minutes', which is what was quoted to me this morning. I left my number to be phoned when it was my turn. It did end up taking them 37 minutes to get back to me. And I am still no wiser than when I first made the call. They also referred me to 'whomever holds your partnership documentation'. But I was after tax info!

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7 years 11 months ago #490606 by kai
Replied by kai on topic Capital gains tax
maybe the same trainee, it was this morning that I rang as well

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7 years 11 months ago #490607 by max2
Replied by max2 on topic Capital gains tax
That is a classic Kai!

Ok, here is what I know about capital gains tax and renovating (flicking) properties.....

Firstly its about ''intention''. What was your ''intention'' when you bought the property? Was it to keep and rent out, or house your family or did you buy it with the ''intention'' to buy, renovate and sell at a profit?

Secondly, how many times are you ''intending'' to flick renos to make a profit? Is it just once or do you see a new career or at least multiple purchases and short term ownership as being part of the picture?

To answer some of the above from my Accountants past words - if its a one off IRD are not going to bother much with you and you ''could'' generally get away with it more than once, but don't push your luck.

If however you start doing it regularly and are not ''holding'' the properties for very long, then you need to declare the profits as income related.

Any (Investment) properties that you have held for a while and claimed depreciation on will have to be paid back on your tax declaration.

If you have amounted losses from other forms of earnings (such as a legit farming enterprises or negatively geared rental income) and have renovation income to declare, your existing losses will write down your taxable income and make IRD extremely happy that you are becoming a tax positive paying person.

.... that was my last conversation with our Accountant on the subject of tax declaration and flicking reno'd properties.

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7 years 11 months ago #490609 by kai
Replied by kai on topic Capital gains tax
The current property should be exempt as the intention was to move in. However it has since given me a taste for it and there is another property that I think has potential for profit, That I know would be liable. But I want to know how it gets taxed. From the sound of it, it gets chucked on top of whatever else your income is and standard income tax is taken off after expenses are taken into consideration.

So I am thinking the next house should be in my name only as I have no other income, but OH does. I could put the money via the gst registered company I have, but I think that would end up being more expensive.

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7 years 11 months ago #490612 by max2
Replied by max2 on topic Capital gains tax
I kept mine privately owned too. I'm not convinced I am big enough to warrant the added expense and reporting of owning a company for that sort of thing.

We have a couple of partnership businesses so each is assessed at tax time on their own merits before the losses/profits are distributed to the individuals return. Then whatever the individual earnt from other sources (ie I worked in the hospitality industry until March 2013) so that income was added to my personal return, partnership stuff also there and then after all the plussing and minusing on my personal return was the final result.

so yes as far as I am aware its individuals tax rate.

Another thing to check is the joint ownership aspect if you do it again in joint names, I am fairly certain only one person can write off any loss from a property but not a couple on each return.

but do check that out to be sure.

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7 years 11 months ago #490615 by lsbloke
Replied by lsbloke on topic Capital gains tax
Kai

you need to get advice on your circumstances from your accountant.

From the IRD's perspective any assets (property included) can be 'held' on either 'capital' or 'revenue' account and as you have been advised your intention in holding them determines which it is in your circumstances - with no capital gains tax making gains by selling assets held on capital account are non taxable. Gains made selling assets held on revenue account are taxable & if they are made by an individual then it's added to whatever other income (including salaries & wages subject to PAYE) and netted with allowable expenses to derive total taxable income in a tax year.

There are timing issues a lot of detail around expenses etc so you should get expert advice for your circumstances - it could save you a lot in the long run and being pinged for getting it wrong could be very costly or worse.

So no disrespect to all us well-meaning LSBers (me included) but don't base decisions on what you get back on any forum

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7 years 11 months ago #490621 by igor
Replied by igor on topic Capital gains tax
There is a brief article in today's Otago Daily Times on this very topic.

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7 years 11 months ago #490623 by Cigar
Replied by Cigar on topic Capital gains tax
I think it isn't necessarily what your intention was, but more what the IRD decides your intention was.

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7 years 11 months ago #490625 by kai
Replied by kai on topic Capital gains tax

Cigar;495342 wrote: I think it isn't necessarily what your intention was, but more what the IRD decides your intention was.

In the case of the first house, there is a plethora of witnesses to back up our intentions, we have been on about moving closer to Wellington to many people and have had the property that we are living valued and have been in contact with many real estate agents regarding moving further south, so I am confident it is all above board. The next property, it is definitely to buy to do up and sell, so I have no problem paying tax on it.

Igor is there a link to the article in the Otago paper?

lsbloke. The forum opinions are interesting, I do not take them as law, but it is food for thought and for researching. In my experience "professionals" be it tradespeople, lawyers, accountants can make mistakes, so if you know what you are looking for it is easier to spot them. (an extreme case was the solicitor for the vendor accidentally sent through the papers to sign for the wrong house, my own solicitor did not notice, it was only when I went to sign them, I saw the wrong address and pointed it out)

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