Like many I sometimes read the Herald’s feature articles about homes for sale. I often wonder if the featured sellers realise the signals they are sending to the Inland Revenue Department. In a recent example from the Herald on Sunday a “lovingly renovated” central Auckland home was for sale. From the article the following facts stood out:
- The owners had only owned the property for 5 years.
- One owner’s father is a builder. The other owner’s father is an architect.
- The home was being sold so the couple could buy another do up and go through the whole exercise again.
- It appeared that the property was bought with the intention of doing it up for the purpose of resale. In such cases the fact that you have used the home as your family home may not be enough to save you from having to pay tax on the sale.
- The close family ties to people in the building industry may also cause tax to be payable.
We don’t know if the owners of the house are actually liable to pay tax, and if they are liable, whether or not they have paid, however, the contents of the article raise a large red flag.
We encourage people to comply with their tax obligations on the sale of property, however advertising your possible liability through a feature article in the paper is probably not a good idea. Even if it turns out that you have no liability for tax on the sale of your property, such an article may attract an unwanted IRD audit. That people feel that it’s a good idea to disclose such information signals the lack of public knowledge about the wide range of scenarios under which tax must be paid on the sale of residential properties. Seller beware!