GRA Blogs

Articles by John Rowe

Unitary Plan Tax Surprise

AUTHOR: John Rowe

POSTED: 17 May 2013

Part of the Auckland Unitary plan addresses Auckland's housing affordability and supply. You'd need to have been living under a rock or in the far reaches of Siberia not to have heard that Auckland has a desperate shortage of affordable housing, as well as a rapidly growing population.

To address this issue, the Council plans to re-zone certain areas to allow for intensification. This is all well and good, but it seems they're also proposing to add a kicker - a "value uplift levy" or "betterment tax", which in essence is a poorly disguised capital gains tax.

The Council's surprise tax

Properties in areas that are zoned for intensification are expected to experience an increase in value. Under the proposed plan, as from 2016 if you make a capital gain when you sell such a property, you may have to pay a levy or value uplift on it, depending on how long you've owned it and who you sell it to.

The levy will apply if:
• You have owned the property for less than 10 years.
• The zoning changes would allow extra homes to be built on the property.
• More than 20% of the gain you make is due to zoning changes.
• You sell to someone who plans to build extra dwellings on it e.g. a developer.

The tax won't apply if you sell to another person who is going to:
• use the property as their place of residence or
• use it as farm land.

The extra surprise
Even if you sell before 2016, you could be surprised with a tax bill if it is determined that the gain was due to the proposed zone changes, despite them not yet having taken effect. The Council's reasoning behind this is that simply talking about re-zoning and potential value increases can push property prices up.

Issues
The idea behind a "betterment tax" is to help fund affordable housing and/or the added infrastructure Auckland will need. However, there are some hurdles to overcome before a betterment levy could be imposed, as stated in the Auckland Council's Housing Action Plan, December 2012.

• A betterment levy is not possible under current legislation.
• Overseas experience suggests that it is difficult to administer
• Complexity of calculating the increase in value.

In the Housing Action Plan, a suggested alternative to a betterment levy could be targeted rates, but a full analysis of this option has not yet been completed.

What can you do?

The proposal for a betterment levy is included in the addendum to the Auckland Unitary Plan, and you can still have your say about it until the end of May 2013.

If the Council goes ahead with the betterment levy, remember that forewarned is forearmed, so the main thing would be to realise that you could be stung with a type of capital gains tax when you sell. Take this into account, along with all the other costs involved with selling your property, so you are clear about what you will end up with in your hand at the end of the day.

Request a Meeting

John Rowe
Director
Business Accounting Services

09 522-7955

jr@gra.co.nz

© Gilligan Rowe & Associates LP

Did you like this article? Subscribe to our newsletter to receive tips, updates and useful information to help you protect your assets and grow your net worth. We're expert accountants providing expert advice to clients in NZ and around the world.

Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.

Comments

Testimonials

This letter is to express my appreciation for the assistance and encouragement of both Anthony Lipscombe and particularly John Heaslip over the last financial year. The period since activating my trading trust has been one of considerable stress, as well as personal development, as I embarked on this as a relative business neophyte with virtually no awareness of the contemporary requirements of running a business, particularly the financial records aspect. During much of this period I have therefore felt considerable out of my depth. However I have been lucky enough to have had the benefit of the advice and support of John Heaslip in rationalizing what was a fairly chaotic set of records of the first year property trading. I am able to say that John in particular, has been unstinting in his attention to my needs and has done so in a manner which has never alluded to my extremely rudimentary grasp of managing a business, or even of being unable to set out a spread sheet properly. The result of the above guidance is that now, although my trading trust would still not be able to operate without the advice of GRA, I do least feel a sense of satisfaction that I have got to my present point without major disaster and that my property trust does now have some kind of firmer basis for any future activities - Name withheld by request

We can help

Here's how

Investing in residential property?

Put this at the top of your reading list.

If you're investing in residential property, seeking to maximise your ability to succeed and minimise risk, then this is a 'must read'.

Matthew Gilligan provides a fresh look at residential property investment from an experienced investor’s viewpoint. Written in easy to understand language and including many case studies, Matthew explains the ins and outs of successful property investment.