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John Rowe

Unitary Plan Tax Surprise


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.

Issues 
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. 

What can you do?

The proposal for a betterment levy is included in the addendum to the Auckland Unitary Plan, and you can still have your say about it until the end of May 2013. 

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. 


John Rowe
Director
Business Accounting Services
© Gilligan Rowe & Associates LP

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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.
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