IR4 Question 21 Other income

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

If the company purchased a residential property on or after 1 October 2015 and sold/disposed of it within the bright-line period, any profit will be taxable, whether the intention at the time of purchase was for resale or not. The bright-line period for:

• properties purchased/acquired on or after 1 October 2015 through to 28 March 2018 inclusive, is two years,
• properties purchased/acquired on or after 29 March 2018 is five years.

The profits may be taxable if the company:

• is a building company and improved a property before selling it

• developed or subdivided land and sold sections

• had a change of zoning on company property and sold it within 10 years of buying it.

If the company is a New Zealand tax resident it will need to pay tax on its 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 the return. The form explains how to calculate and correctly return the resulting profit or loss. The form can be downloaded from our 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.

Print the total profit in Box 21B.

If you’re not sure if the income from the sale of land or buildings is taxable, please call Inland Revenue.

Profits from the sale of shares and other property are taxable if the company:

• buys and sells shares or other property as a business, or

• buys shares or other property for the purpose of resale.

This does not apply if shares are FIFs.

List the details of income and expenses from these sales on a sheet of paper and staple it to the top of page 3 of the return. Include the total profit in Box 21B.

If the company has made a loss from the sale of an asset that was not an FIF and you can show that if it had made a profit it would have been taxable, you may be able to claim the loss as a deduction. If the property was purchased on or after 1 October 2015 with no intention to sell and it was sold/disposed of within two years, any excess deductions can't be claimed unless they can be offset against net income from other property sales. The Property sale information (IR833) form has more information on this.

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

Show the loss at Box 21B.

A company must account for income from financial 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. Changes to the rules for the treatment of financial arrangements have split the rules into two sets. Generally, the first set applies to financial arrangements entered into before 20 May 1999 and the second applies to financial arrangements entered into on or after that date.

Both sets of rules require the income or expenditure to be spread over the term of the financial arrangement.

This applies in every case—the company doesn’t have to be in the business of buying or selling financial arrangements, or be intending to sell, as it would with shares. The company may, in certain cases, deduct any losses.

When a financial arrangement matures or is sold, remitted or transferred, a “wash-up” calculation, known as a base price adjustment, must be made. The calculation ensures that the total gains or losses from the financial arrangement are accounted for.

If you need any information on when losses can be deducted or how to calculate a base price adjustment, please call Inland Revenue on 0800 443 773.

Profits from any undertaking or scheme entered into for the purpose of making a profit are taxable. Describe the undertaking or scheme and list the details of income and expenses from them. Staple this information to the top of page 3 of the return and include the total profit in Box 21B.