Reference: Otago Daily Times 12 April 2022 (condensed)

Homeowners could get a large unwanted tax bill if they do not do their homework on a new bright-line disclosure system, accountants are warning.

Last week, the Inland Revenue Department uploaded land transactions to its online system, myIR, with pre-populated data on the sale and purchase price.

It asked taxpayers who had recently sold a property to fill in details regarding the nature of the transaction and whether the bright-line test - the way of taxing financial gains on investment properties sold within a certain period of buying it - applied.

Main residential properties were exempt from the test and there were concerns people could make an incorrect disclosure.

A tax advisory expert was concerned it could trip up homeowners, who might not have "sophisticated" tax knowledge, leaving them with a large tax bill.

If people took the wrong position, they would have to go through a "massive" process to get it amended.

The new changes would not hit property investors because they were usually "switched on" when it came to taxes, but it could catch average "mum and dad" buyers out.

While the IRD was trying to make "life as easy as possible", it could end up having serious repercussions, as rules around land transactions were very complex.

The more correct information that ended up on myIR was generally good for taxpayers, but wrong information could cause a "great deal of stress and concern" and would catch some people out. 

Chartered Accountants Australia and New Zealand tax leader John Cuthbertson said the current bright-line rules were "incredibly complex".

That meant there was a "real risk" the average New Zealand property seller could inadvertently get it wrong.

"The simple yes/no and drop-down boxes in the myIR form do not reflect the complexity of the rules," he said.

Selecting that bright-line applied when it might not could ultimately result in an unnecessary tax liability, Mr Cuthbertson said.

In response to queries from the Otago Daily Times yesterday, an IRD spokeswoman said it was the department's goal to raise people's awareness of the bright-line rule and help them work out if it applied to their situation.

The pre-population of property sale information was designed to help avoid the situation where non-disclosure of a bright-line sale led to unnecessary hardship down the line.

As it was a new system, IRD had been contacting customers who had a bright-line sale to talk them through the process.

 

For more information and to discuss your specific situation in relation to bright-line, please contact us.