IR3 Question 24 Other income

The profits are taxable if you bought a property for the purpose of reselling it or are in the business of buying and selling land and/or buildings.

If you purchased a residential property on or after 1 October 2015 and sold/disposed of it within a certain period of time, any profit will be taxable, even if you didn’t intend to sell when you purchased it. This is called the bright-line test. The bright-line test applies to:

• properties purchased/acquired on or after 1 October 2015 through to 28 March 2018 inclusive and sold/disposed of within two years, and
• properties purchased/acquired on or after 29 March 2018 and sold within five years.

The profits may be taxable if you:

• are a builder and improved a property before selling it

• developed or subdivided land and sold sections

• had a change of zoning on your property and sold it within ten years of buying it.

The bright-line test needs to be considered when none of the other land sale rules apply to the disposal of the property.

Show the total profit in Box 24.

If you’re a New Zealand tax resident you’ll need to pay tax on your worldwide income under New Zealand tax law. This includes any property sales worldwide whether caught under the bright-line test for residential property sales or the other property rules.

Complete a Property sale information (IR833) form for each property sold/disposed of and include it with your return. The form explains how to calculate and correctly return the resulting profit or loss. You can download the form from the Inland Revenue website www.ird.govt.nz (search keyword: IR833). Complete the form even if the details have been included in a Financial statements summary (IR10) or set of accounts.

The profits are taxable if you bought:

• and sold shares or other property as a business

• shares or other property for the purpose of resale

• shares or property to make a profit.

This doesn’t apply to shares that are FIFs. Print the total profit in Box 24. Attach the details of your income and expenses from these sales to your return.

If you sold or disposed of a depreciated asset for more than its adjusted tax value, call Inland Revenue or read the guides Depreciation (IR260), General depreciation rates (IR265) or Historic depreciation rates (IR267).

If you made a loss and can show that if you’d made a profit, it would have been taxable, you may be able to claim the loss as a deduction.

Show the total in Box 24.

If the property was taxable under the bright-line test, any excess deductions can’t be claimed unless they can be offset against net income from other property sales in the same year. Any excess deductions not allocated to the income year will be treated as the cost of revenue account property and carried forward to the next income year. The Property sale information (IR833) form has more information on this.

For more information on property sales see our guide Buying and selling residential property (IR313).

If you’re a party to a financial arrangement, you must account for income from those arrangements on an accrual basis. Financial arrangements include government stock, futures contracts and deferred property settlements, excluding short-term agreements for sale and purchase of property.

A cash-basis person doesn’t need to use the accrual method to calculate income. You qualify as a cash-basis person if:

• on every day in the income year the absolute value of all financial arrangements added together is $1,000,000 or less, or

• the absolute value of your income and expenditure in the income year under all financial arrangements is $100,000 or less, and

• the deferral of income or acceleration of expenditure using the cash method rather than the accrual method is $40,000 or less.

If you held the financial arrangement prior to 20 May 1999 the amounts above may be reduced to $600,000, $70,000 and $20,000 respectively.

Please note the “absolute value” is the value of an amount whether it’s positive or negative.

Whether or not the exemption from the spreading method applies, you must do a “wash-up” calculation in certain circumstances. For example:

• a financial arrangement matures, is sold, remitted or transferred

• there is an absolute assignment of the financial arrangement

• a party to a financial arrangement is released from making all remaining payments under the Insolvency Act 1967, the Companies Act 1993 or the laws of a country or territory other than New Zealand

• you cease to be a resident of New Zealand.

The calculation ensures that the total gains or losses from the financial arrangement are brought to account. This applies in every case—you don’t have to be in the business of buying or selling financial arrangements, or have bought them for the purpose of resale, as you would with shares.

When calculating the income or expenditure on sale, use the Sale or disposal of financial arrangements (IR3K) form.

If you received any other type of income that didn’t have tax deducted from it, show it in Box 24.

Attach the details of your income and any expenses to your return.

If your share of partnership income is received in recognition of your capital investment in the partnership and you didn’t take any active part in the day-to-day operation or management of the business (that is, you were a sleeping partner), show your share of partnership income in Box 24.