Capital Gains Tax – CGT

Andy

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Generally, New Zealand has no tax on capital gains.

However, you buy and sell property, your gains may be taxed as income. The rules can be complicated and are based in part on your intentions at the time of purchase. This example from Inland Revenue states:

“You buy a property with a firm plan to resell it for a profit. The property market falls, and you decide to hold onto it instead. You rent it out for 15 years and then sell it when the prices are again rising rapidly. Any gain on that sale 15 years later is likely to be taxable.”

There is also no automatic capital gains tax on stocks and shares.

However, if you buy and sell stocks and shares frequently, it may be that the Inland Revenue Department (IRD) will class your activity as “trading” rather than “investing”. If this is the case, you will be liable to pay tax on your trading gains as if they were income. You will also be able to offset losses and fees on your share dealings against tax and deduct expenses such as computers, software books etc., that you use for your share trading from your taxable profits.

The IRD uses your intention to buy a stock as their guide to whether you are a trader or investor. Therefore, if you wish to avoid paying capital gains tax, it can be helpful to write down your reasons for buying and selling any particular stock as evidence that you are an investor rather than a trader.

For example, an investor might record that they bought stock to receive a growing dividend income and sold it to preserve his capital.

From 01 October 2015, there is a tax on capital gains (the bright-line test) on residential properties bought and sold within five years. The tax rate is the same as the seller’s income tax rate. Excluded are the family home, death estates or properties sold as part of a relationship property settlement.

Properties purchased on or after 01 October 2015 through to 28 March 2018 are subject to the bright-line test if sold within two years.

If you hold overseas investments of more than $50,000, you may be subject to foreign investment income fund rules. However, there is transitional relief from these rules for up to four years for new residents to New Zealand. More information is available here.

Note – the above information is very general and is not intended to be used as the basis for any financial decisions you might make. If you require tax or financial advice, please ensure you consult a qualified tax professional.
 
I didn't know about the bright-line test for residential properties and the IRD's distinction between traders and investors based on intention. It's good to know that writing down your reasons for buying and selling can help avoid paying CGT.
Speaking of finances, it migth be helpful to use a pay stub creator. It makes keeping track of your income and expenses a breeze. I'm sure a lot of you traders and investors out there could benefit from using one.
But back to the topic at hand, it's crucial to do your research and consult with a qualified tax professional when it comes to financial decisions.
 
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@kristaevans: Thank you for your comment! It's great to know that the information was valuable and informative for you. It's always important to stay informed about tax laws and regulations, especially when it comes to investing and buying properties. I hope this information will be of help in making informed financial decisions.
 
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