How do you know if you might have to pay tax on the sale of a property?
At one end of the scale is someone who owns their family home for decades, does not own any other property, and who has no close connection with anyone in the building or property industries. Such a person is highly unlikely to be exposed to having to pay tax upon the sale of the home.
At the other end of the scale is a taxpayer that the IRD came across recently. That person had traded more than 50 properties in one year and not declared any of it for tax. Obviously there would be tax issues for that person, and the failure to declare appears so gross that tax evasion charges could be an issue. People who fall in-between should ask themselves if they may need to pay tax on the sale of their properties. Often the answer is a clear cut no, however, the answer is yes more often than many realise.
If you don’t need to pay tax don’t send red flags to the IRD through the wording of real estate articles or advertisements as this may cause you to be audited. Even if you come out squeaky clean from such an exercise, it’s better to avoid getting yourself into that position in the first place. If you’re unsure about your position it is best to seek advice before placing the property on the market as the liability to pay tax on a sale is a factor that may affect whether the property goes on the market at all, and if so, the minimum selling price that you will accept.