Changes to Property Tax Exemptions slipped in latest Tax Bill

The Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill was introduced to Parliament on 4 June. The Honourable Stuart Nash said this legislation was to “support growth and assist businesses on the road to economic recovery.”

What the Honourable Stuart Nash didn’t say is that this legislation contains measures to assist Inland Revenue to collect more tax from the property industry. The current “land tax” rules, which include the “bright-line test”, contain exemptions for the main home and business premises. At present, these exemptions will not apply when the person has engaged in a regular pattern of buying and selling property. On 16 September, Inland Revenue released a tax consultation document relating to the habitual buying and selling of land due to concerns that the current restrictions relating to regular patterns of transactions were easily circumvented.

The issue identified is that the exclusions as currently drafted in legislation can be manipulated by using various associated persons to carry out the different transactions, or by varying the transaction so that there is no pattern.  This creates a loop-hole which has undermined the integrity of the tax system.  The proposals focus on looking at the patterns within a group of persons rather than an individual person, as well as looking at the various activities carried out on the land while it is owned.  Officials consider that it should not matter whether the properties were renovated, building work was undertaken or they were simply bought and sold. The focus for Inland Revenue is the regularity of the transactions.

The tax consultation document proposed a solution to the risks identified by Inland Revenue, and the Bill introduced on 4 June contains the changes set out in the tax consultation document. If the Bill is passed in its current form, the main home and business premises exemptions will not apply when a group of persons (including trusts and companies) are acting together.