New rules for property investors
These rules were intended to:
- Firstly reign in the house price increases in the Auckland property market
- Secondly to give further assistance to IRD to collect tax on property speculation
The first announcement on the 13th May 2015 was from the Reserve Bank
They announced that property investors buying in the Auckland market will require a 30% deposit. The changes are not yet confirmed, pending further consultation with the banks, but in summary are:
- Residential property investors in the Auckland Council area need a deposit of 30 percent for any mortgage loan for a non-owner occupied property.
- Increase the existing restriction on high LVR borrowing (above 80%) outside Auckland from 10 to 15 percent (this will assist investors buying outside Auckland).
- Retain the existing restriction on high LVR loans (above 80%) to owner-occupiers in Auckland at 10 percent.
Banks will be required to hold a separate asset class of bank loans for residential property investors. More capital will be required against these assets to reflect higher risks in this lending.
This could result in higher interest rates for investors or surcharges on investment loans. Any new lending from October 2015 will be affected by these changes.
The second announcement on the 17th May 2015 was a precursor to the budget announcements
John Key stated that any person who buys and sells a house in a two year period, which has not been for their own personal use, will be taxed on the profit. Basically they are intimating that if you are buying and selling in this short period you are a trader rather than an investor.
The rules around taxing property transactions in NZ are quite misunderstood and there is a lot of hearsay around what these are. Let us clarify what the rules are.
Any person who buys a property with the main “intention” of reselling for a profit is a property trader and will be taxed on the profits made when the property is sold. This is the same as any other business person would be taxed on profits they make from buying and selling a product. This rule has not changed and will still be in force. There is no time limit on this it is all around intention.
On the other hand any person who buys a property with the intention of renting out this property and is therefore in the business of investment will not pay tax on capital profits made when they sell as they are in the business of renting not buying and selling property.
The only exception to this now will be if you buy and sell a rental investment within a two year period you will be treated as a trader and taxed on any profits from selling the property.
In addition there will be a requirement for all property purchasers buying a property other than their main home to have a NZ IRD number and a NZ bank account. This may affect non-residents who are buying property in New Zealand for investment or trading purposes.