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Unitary Plan rezoning - will you be affected by any tax implications?

Property Tax

MyPropertyLife 09 Mar 2017

property-rezoning-and-the-unitary-plan-will-you-be-affected-by-any-tax-implications?.jpgAuckland’s Unitary Plan became ‘operative in part’ on the 15th of November, 2016, and is set to directly affect housing needs by determining what can be built and where, as well as how to create a higher quality and more compact Auckland region.

This has meant many suburbs right around the city have been rezoned, so where it was previously only possible to build one house on a specific size of land, it now may be able to have two or more on it, or even apartment/terraced housing.

For example, housing on Takapuna’s Lake Road will more than double in size in some places - and of course, where single-use land is turned into multi-use (think subdividing), prices of the property goes up.  
For many Auckland homeowners, this has resulted in significant increases in the value of their property - an exciting prospect for many. But there needs to be more awareness around the tax implications, as some specific gains can result in income tax payable for earnings made when the property is sold.

 

What does it all mean for home owners? 

So what could happen if you decide to sell your home - and because of the Unitary Plan rezoning, it was subject to a greater value that it was from the time you bought it? According to the specific land taxing provision under section CB14, here’s the math:

CB14 taxes gains on land sold where the increase in the land value, due to the rezoning, is 20 per cent or more.

So if you bought a property six years ago for $400,000, and due to capital gain in the Auckland market, it is now worth $600,000. However, after the rezoning is complete, the property is valued at $800,000 - as it is now in a mixed housing zone and could have multiple townhouses built on it. Which means, since purchasing it, the value has increased by 100 per cent.

But as $200,000 was just normal capital gain, only the increase from the Unitary Plan is subject to income tax if it is over 20 percent, which in this case it is 50 per cent.   

However there is another equation that you will need to work out - for every full year of ownership the amount of profit subjected to tax is reduced by 10 per cent, meaning if you have owned the property for 10 years or more, then no tax is payable. So for the example above, only 40 per cent of the total profit is taxable - resulting in a taxable income of $160,000.

Read more: How loan to value ratios affect residential property investment

Are there any exemptions?

There are two main exemptions to this tax rule - the first is that it doesn’t apply to farmland (as long as the purchaser will continue with farming it). For residential properties, those in a trust are also exempt as long as it is sold to someone who will also be using it as a residence - if it is sold to a developer then it will be subject to income tax.

Due to the rather confusing nature of the these changes, and the wide-reaching implications to so many Auckland homeowners, it is advisable to speak with both a registered valuer and an accountant when it comes time to selling your property - and to of course find a qualified real estate agent who is well informed on the subject and can guide you on the best course of action for the selling your home.


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