[IN CONFIDENCE RELEASE EXTERNAL]
8 April 2021
Adam Irish
[FYI request #14888 email]
Dear Mr Irish
Thank you for your request made under the Official Information Act 1982 (the OIA),
received on 9 March 2021. You requested the following:
1. What is the total number of properties that have paid tax related to this
requirement each year over the last 3 years.
2. Does IRD have an investigations team to check that this requirement is being
adhered to and what is the size of the team.
3. Does IRD request information from LINZs on the transfer of property to enforce
these regulations.
Question one
As background, the Bright-line Test means if someone sells residential property within a
set period after acquiring it, they may be required to pay income tax on any profit made
through the property increasing in value. They do that by including the income in their
income tax return (or adding it to their automatically generated income tax assessment).
Up until this year, bright-line income was added to the ‘Other Income’ box.
Bright-line income is not specifically labelled as it is not a category of tax in its own right.
There is no easy way for Inland Revenue to know how much tax has been paid due to the
bright-line test.
However, we can provide a summary of the activity that has taken place for property
transaction in the 2018-19 tax year. As there is natural delay between when a property is
sold and when Inland Revenue might investigate it to provide an understanding of
compliance with the Bright-line rules, we need to look at property sales from a few years
ago.
In the 2018-19 tax year there were 28,552 property sales that happened within the Bright-
line period.
Of those, 9,126 were potentially taxable based on the information we had at the time. The
remainder were mostly excluded from the Bright-line Test because they were main homes
inherited or sold by developers or property dealers who pay tax on those sales in other
ways.
For those 9,126, we can see an appropriate amount of income being included in Other
Income for 33% of them, which leaves 67% where income may not have been properly
included.
Our investigations into those 9,126 property sales are still ongoing. But from our prior
year investigations (of those people our analysis showed were most likely to be avoiding
their obligations) we found the following:
•
37% were not subject to the Bright-line at all. Mostly they were subject to the
Main Home exclusion, but just didn't tick the box indicating the property was their
main home.
•
Of the remaining, 74% had already included the Bright-line income in their tax
return - they just didn't do it in the right way. For example, they put the income
in the wrong place.
Ref: 21OIA1481
[IN CONFIDENCE RELEASE EXTERNAL]
• This means most of those we reviewed were actually meeting their Bright-line
Test obligations.
• Of those we found did have tax outstanding, 80% corrected their return when we
first contacted them.
Question two
Inland Revenue staff have new broad capability-based roles. We draw on a range of skills
from across the organisation on a range of compliance activities, including those related
to property.
In the 2019/20 financial year, we had 135 staff directly involved in bright-line investigation
activities.
Question three
Inland Revenue and Land Information NZ have a Memoranda of Understanding (MoU)
relating to the exchange of information. You can find details of the MoU on Inland
Revenue’s website (ird.govt.nz) under
Information sharing or through the following link:
https://www.ird.govt.nz/about-us/information-sharing/mous/linz.
Thank you again for your request.
Yours sincerely
Richard Owen
Customer Segment Leader
Ref: 21OIA1481
