More and more New Zealanders are entering into the business of buying and selling properties for profit, and as such people undertaking such activity should make sure they are covered off in a number of aspects:

Tax: It is important to understand that property traders are subject to income tax on their “gains” as such activity is clearly being entered into with the view to making a profit.  It is important to take this into account when initially structuring your property trading entity, and also when it comes to the number-crunching at the time of sale.  We can assist with making sure you don’t receive any nasty surprises from your trading activity.

GST: Property Traders who are undertaking an ongoing activity with buying and selling are likely to be deemed to have a “taxable activity” from a Goods & Services Tax perspective.  This then creates important decisions to be made around the Property Investor’s GST position:

  • What type of registration should be entered into, i.e. invoice basis versus payments basis?
  • What input tax deductions can be made, and what is the timing of those?
  • Are there likely to be any zero-rated transactions where no GST may be claimable at all?
  • Has GST been factored into the final sale price to make sure the mortgage can be discharged, the GST can be paid to IRD and the project’s costs are covered and its anticipated profits are achieved?

Tainting:  It is also extremely important that Property Traders consider the impacts of their activities on any other passive property holdings they have, i.e. rental properties.  The Income Tax Act’s associated party rules deem entities “related” to Property Traders to be tainted by the trading activity and this can see passive holdings being subject to income tax on sale if care is not properly taking.  If you are potentially in a situation of this kind, please contact us to see what can be done to mitigate any potential hidden costs.

Structure:   Given that property trading attracts income tax consequences it is always wise to consider how the purchasing entity is structured.  Often the use of companies and/or trusts works well to provide some form of protection from liability for the activity but at the same time flexibility in terms of the distribution of profits.  If entering into property trading activity, contact us to get a sound overview of what you can achieve from sensible entity structuring.