Speculators are making millions in an overheated housing market but as many as one in four didn’t pay the tax they owed on properties flipped last year, IRD figures reveal. Of the 1701 property sales subject to the bright-line test in 2019 – a form of capital gains tax – just 1285 have paid up.
That’s a compliance rate of just 75 per cent, meaning one in every four speculators the tax applied to, hasn’t paid yet.
Bright line test
New Zealand has almost no taxes on the money made from selling property. The John Key government created the “bright line test” which was a kind of capital gains tax. It meant that in most cases, if an investment property was bought and sold within two years, the money made from the sale would be taxed.
The bright line test is notorious for noncompliance. IRD warned the current government when it extended the threshold from two to five years that as many as half of the tax applied to didn’t pay it voluntarily – that means IRD would have to chase them down to get them to pay.
Revenue Minister David Parker said the IRD was working on making sure people paid the tax. ”There is a time delay between properties being sold and bright-line information being included in a tax return,” Parker said. “Inland Revenue is working with customers to encourage them to comply. We expect, given the work IR is doing, that the reporting and compliance will improve over time. In relation to the compliance in the 2019 year, Inland Revenue is already addressing those compliance issues,” Parker said.
Backlog
Inland Revenue is also looking at 3758 sales where the bright-line test might apply, meaning the 75 per cent figure could increase. It says it is working through the backlog.
“Inland Revenue is currently following up with customers on the balance of these transactions through engagement by our community compliance officers along with any required audit activity to make sure these customers fulfil their obligations under the bright-line rules. Currently we are about a quarter of the way through these cases,” a spokesperson said.
The Government is struggling to contain the rampant growth in house prices seen since the lockdown. It’s currently embroiled in a debate with the National Party about whether it should rein in the Reserve Bank, which has promised to print money to encourage more bank lending – something that could further increase house prices.
Westpac economists are forecasting house price increases by as much as 15 per cent in the next year. Prime Minister Jacinda Ardern doesn’t want to use the Reserve Bank to cool the housing market. Instead, she’s suggested the Government might do something to help first-home buyers clear the deposit threshold. Ardern has cited the extension of the bright-line test as something the Government had done to fix a broken housing market.
Stuff