Confess early, property speculators advised

Wheeler-dealer Aucklanders who bought even one house or flat with the intention of making a speculative gain must pay tax on their profits when they sell, according to a financial expert.

PricewaterhouseCoopers tax partner John Shewan warned Aucklanders to confess early rather than waiting for Inland Revenue to find them. He said he had no sympathy for people who flouted tax laws.

He warned speculators who feared a tax bill against phoning Inland Revenue directly to discuss their tax position, saying this in itself could spark an investigation.

Instead, they should go to a tax consultant to find out if they had a tax exposure.

But Senior Auckland department official Richard Philp said people could phone anonymously to talk about the general rules and would be helped without having to give their name.

More specific information could be provided, though, if they gave their IRD number.

Mr Shewan was commenting on the Inland Revenue Department's announcement yesterday that it was increasing resources to hunt down Auckland speculators and developers who had kept their profits a secret.

After sending four teams into the Wanaka and Queenstown area, the department has concentrated its efforts on Auckland and reaped such rich rewards that this year it will increase resources by a third.

Mr Philp said an extra $106.6 million was gathered nationally in 18 months on property transactions, including $52.9 million from Auckland.

Mr Shewan said tax liabilities on property deals was a complicated area and one easily misunderstood.

"Profits are taxable if you firstly buy with the intention of selling to make money and secondly didn't buy the place to live in," Mr Shewan said. "Some New Zealanders are taking a come-and-get-me philosophy but the onus of proof is on the taxpayer."

Buying the house next door with the intention of never living there but doing it up to resell made you a speculator, he said, and liable to pay tax when you sold.

He warned speculators that the department could trace intentions by accessing bank records which might reveal aspects such as a short-term mortgage, indicating a clear intention to sell the property for a fast gain.

The tax rules

* If you bought a property with the intention of selling on for profit, declare the profit as part of your taxable income.

* If you bought expecting to hold the property long-term without any intention of selling to make a gain, you are unlikely to be taxed, but keep a paper trail stating your intentions at the time of purchase.

* If you are worried about which category you fall into and whether Inland Revenue would classify you as a speculator or developer, consult a tax expert or the department.