This Sunday is daylight savings time again. Spring means to Leap Forward – and put our clocks forward 1 hour. Also, the Government and the Inland Revenue have both recently made some tax announcements, leaping into action. Here’s the first one.
A tax policy consultation document was released by the Inland Revenue on “Habitual buying and selling of land”. This is a further move by the Inland Revenue to sweep up those it considers have managed to slip through the existing land taxing provisions. Now that capital gains on land is “off the table” with the Government they are looking closer at the existing exclusions on taxing land.
This new proposal is picking up on the (main home) exclusion in legislation and also extending tax provisions to residential land and business premises if the taxpayer has a regular (habitual) habit of buying and selling. At present some of the exclusions have a carve out (or claw back if you prefer) where “a person has engaged in a regular pattern of acquiring and disposing of, or erecting and disposing of …” [main home, business premises or residential property]. The Bright-Line rules also carves out the exclusion in that the main home exclusion cannot be used more than twice in a 2 year period.
The first problem is the word “pattern”. The Revenue released a paper on this a while ago, but now find themselves caught up in their own interpretation, which essentially defined “regular pattern” as being the same activity / use of each parcel of land being repeatedly bought and sold. Where the property is being used or was acquired differently, the Revenue’s current interpretation would have these differences as being non-pattern.
Examples include, say where the person lived in each property but did this: 1, buying and renovating and selling, 2 buying bare land, building and selling, and just buying and selling. The three types of property are purchased differently and the activity is different, so there is no “pattern”.
The second problem is the word “person”. Here the Revenue notes that this only applies to one person / entity, but where that person or entity and their associates are engaged in habitual behaviour of buying and selling but under different legal ownership the existing legislation doesn’t work.
The example given is Mr A buys property 1, Mrs A buys property 2, Family Trust buys property 3, Mr A buys property 4 and Family Trust buys property 5.
Under the legislation for “person” and/or the Revenue’s interpretation of “pattern” means that under both these examples the properties are not taxable.
The proposed amendment would capture all “groups of people” engaged in a regular behaviour of buying and selling where an exclusion could otherwise apply. Groups of people would include trusts, partnerships, individuals and companies. The emphasis on the word “pattern” would likely be removed and the habits of the person (or groups of persons) would be more relevant. The Revenue is also considering a time period restriction to help them work out what was a habit, possibly more than twice in a three year period. This obviously to assist Revenue staff identifying who’s been good and who’s been bad. And that’s a basic flaw in itself. Some tricky taxpayers seem to always just work outside the prescribed timeframes!
There is no draft legislation at present, but submissions need to be made by Friday 18th October 2019 on this consultative document. For more detail click on this link. And watch this space.