Frequent buying and selling of property tax rules under review
If you frequently buy and sell property, you may want to keep a close eye on Inland Revenue’s review of some property tax rules that was announced in September 2019. One area being targeted is the use of the ‘main home exemption’.
Under current rules, you may be exempt from paying tax on a property sale if the property is your main home. You cannot rely, however, on the ‘main home exemption’ if:
- You have already claimed the exemption twice within the previous two years, or
- You engage in a regular pattern of buying and selling residential properties.
The IRD is considering tightening the exemption rules. It proposes reviewing property transactions under your own name together with transactions under the name of someone living with you or an entity associated with you, such as a family trust. If there appears to be a pattern when all those transactions are looked at together, you may be liable to pay tax.
Further limits on the exemptions that apply to property used as residential and business premises are also contemplated. The IRD is likely to announce a decision on these changes later this year, with law changes being made in 2020. The full details on the proposed rule changes can be found here.
Buyers must take care when cancelling an agreement
The proposed purchaser of a Dunedin property is at least $150,000 out of pocket after improperly cancelling his agreement. The outcome in the recent court case Strack v Grey (Strack v Grey  NZCA 432) warns buyers to take a diligent approach to conditions in an agreement for sale and purchase of property.
Mr Grey signed an agreement which included conditions allowing him to cancel the purchase if he was dissatisfied with a written building report or unable to obtain sufficient finance. Last year, the High Court found that Mr Grey breached this agreement when he cancelled it on the basis that he was dissatisfied with the building report. Mr Grey’s concerns about the property’s retrofitted insulation were, in fact, founded in his own research, not the building report.
In September, the Court of Appeal ordered Mr Grey to compensate the Stracks $150,000 for his breach (being the difference between Mr Grey’s offer and the offer of the property’s eventual buyer). In reaching its decision, the court rejected Mr Grey’s argument that he should not have to pay given he would have cancelled the agreement anyway under the finance condition. Mr Grey was unable to prove to the court that he would have been unsuccessful in obtaining finance as he only made preliminary enquiries with one bank.
This latest decision in Strack v Grey reiterates that it is essential that your reasons for cancelling an agreement are properly linked back to any conditions in the agreement and that you do ‘all things that might reasonably be necessary’ to meet the agreement’s conditions before cancelling.
First home buyer scheme changes
In the Winter 2019 edition of Property Speaking, we outlined schemes available to help first home buyers. Following the government’s announcement on 4 September 2019 of changes to the schemes, some schemes have been re-named:
- Welcome Home Loan is now the First Home Loan
- HomeStart Grant is now the First Home Grant, and
- Housing New Zealand, HLC and KiwiBuild have amalgamated to establish Kāinga Ora – Homes and Communities.
As part of more substantive changes, if you are a first home buyer, you now may be able to:
- Access a First Home Loan and First Home Grant even if you only have a 5% deposit
- Sell a KiwiBuild property after you have lived in the property for one year (instead of three), and
- Pool together First Home Grants to buy a property with no limit on the total grant as long as all buyers will live in that property.
The government has also announced that it will introduce new progressive ownership schemes, such as a rent-to-buy scheme.
If you are unsure about whether you are eligible for a first home buyer scheme or how to apply, we can help.
DISCLAIMER: All the information published in Property Speaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of this firm. Articles appearing in Property Speaking may be reproduced with prior approval from the editor and credit given to the source. Copyright, NZ LAW Limited, 2019. Editor: Adrienne Olsen. E-mail: firstname.lastname@example.org. Ph: 029 286 3650 or 04 496 5513.