Property owners selling land rezoned under Unitary Plan for profit could be stung by rare tax

Developers or property owners hoping to make a big profit on land earmarked for intensification under the Unitary Plan may be stung by a rarely used tax law.

Experts are warning that gains on the sale of any land which has shot up in value because of zoning changes could be subject to tax.

Lawyers at national firm Bell Gully said that the "land provisions" in the tax legislation could mean that gains on certain land sales would be subject to income tax.

"In short, the rule could apply where a person sells land within 10 years of acquiring it and 20 per cent or more of the gain they realise is attributable to a change in zoning set out in the Unitary Plan," said Mathew McKay from Bell Gully.

Lawyers said most people were already aware of taxes on properties bought for resale or sold for profit within a two year period, but many may not be aware of the rule taxing gains made from the disposal of "land affected by change".

The tax rule would apply when a person sells the land within 10 years of purchase and at least 20 per cent of that gain was due to factors such as changes to the rules of an operative district plan under the Resource Management Act 1991 - such as the Unitary Plan.

The only exclusions to the rule is for land bought for residential purposes and sold for residential purposes and farm land.

But, if a person sold to a land developer the sale would not fall within the exclusion and the tax rule would apply.

The exception would also not apply to investment properties.

Lawyers at Bell Gully said that the law was unlikely to have been written with the level of change in mind that may occur under the Unitary Plan.

"Given the potential consequences of this rule, there is a strong case for a review of its scope to ensure it operates appropriately having regard to current tax policy settings," McKay said.