Just returned to New Zealand? What you need to know about capital gains tax
Tax Alert - December 2020
By Emma Marr
Anyone reading the papers in New Zealand recently might think we don’t tax any capital gains. While we don’t have anything in our legislation called “capital gains tax”, many gains that you might think of as capital are actually taxed in New Zealand. Recent returnees (and many long-term residents) should read on to learn about how this happens.
First up, if you’ve recently returned to New Zealand, read our high-level summary of how our tax rules work as you transition back to being a New Zealand tax resident. If you qualify for the transitional residence exemption, this can have a big impact on how you’ll be taxed on income from overseas. That won’t help with any New Zealand income though, so remember to treat that separately.
Next, assess your assets and your income. Outside specific rules that apply for particular types of assets and income (eg land), in New Zealand you’ll be taxed on income from profits made when you sell any personal property (ie, not land) if you:
- acquired the personal property for the purposes of disposal;
- entered into an undertaking or scheme to make a profit with the personal property purchased; or
- are in the business of dealing in that personal property.
This applies to any personal property – fine art, jewellery, classic cars, the pottery you are casually throwing in your garden shed. If you’re doing it to sell and make a profit, Inland Revenue will tax it.
Whether or not you are in business will be inferred from your conduct, including the frequency and volume of transactions, and the pattern of behaviour over a period of time.
This month we are covering the rules around taxing property under the bright-line test, and last month we covered how profits made on crypotassets and share transactions can be taxed. Inland Revenue is taking an active interest in all of these areas. You need to be aware of their sophisticated data-analytics capability, and their extensive information gathering powers. If Inland Revenue want to know about something, they have extremely wide powers to get that information. The best strategy is to be informed, to be proactive in getting advice and, if required, declare any resulting income and pay tax.
If you own shares in a foreign company you may also have tax to pay, even when you make an unrealised gain. Similarly, unrealised gains made from financial arrangements (foreign or not) might be taxable. Gains of this nature might seem capital, especially if they’re unrealised and you have no cash to pay any tax liability, but they’re still taxable in New Zealand.
If you’re interested in understanding your tax position further, get in touch with your usual Deloitte advisor.
December 2020 Tax Alert contents
- Tax rate change enacted along with big-brother information gathering powers
- Inland Revenue steps up activity on taxing house sales
- Just returned to New Zealand? What you need to know about capital gains tax