Articles by John Rowe
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.
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.
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.
Matthew I have to say that I regret not getting into your Property 101 book earlier as it is so very readable and practical. And the case studies really bring the material to life. - G. Cleland - November 2015
Gilligan Rowe and Associates is a chartered accounting firm specialising in property, asset planning, legal structures, taxation and compliance.
We help new, small and medium property investors become long-term successful investors through our education programmes and property portfolio planning advice. With our deep knowledge and experience, we have assisted hundreds of clients build wealth through property investment.Learn More