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Land Tax case a satisfying win for Staples Rodway client

Land Tax case a satisfying win for Staples Rodway client

Article by
Mike Rudd
Tax, Director, Staples Rodway Auckland

Winning a July 2016 Taxation Review Authority (TRA) decision recently saved a Staples Rodway client nearly $1 million in income tax. The taxpayer involved is a long-standing client, and the Taxation Review Authority case was presented by Staples Rodway Auckland’s Mike Rudd, a Tax Director, with the assistance of Phil Pavis, a Business Advisory Director.

The matter in dispute was whether the taxpayer had acquired a 10-acre property with the purpose or intention of disposing of it in the future.

Key to establishing this was determining what date the taxpayer’s intentions had to be identified. This meant that the TRA needed to determine when the property was acquired, as the taxpayer’s intentions changed between entering into the contract and registering the title.


The facts in this case were quite straightforward. The taxpayer purchased a 10-acre property and house in 1996, intending to use it as her home. Circumstances changed shortly afterwards and she decided that she would not live in the house after all and, instead, rented it out.

The taxpayer owned other property and was registered for GST in respect of those other properties because of her future intention to develop them. She decided that this section, being 10 acres and located on the outskirts of Auckland, might also be developed in the future and therefore claimed GST on it 6 months after first entering into the sale and purchase agreement. The actual change in ownership on the land title was registered with the Land Transfer Office at the later date, after her intentions had changed.

As events transpired she never developed the property or carried on any business of property development in her own name, although she was involved in some businesses that did carry out property development.

The property was held for 16 years, deriving rental income, but was never developed. The taxpayer sold the land in 2012. Being well-located, and in the Auckland region, the capital gain from the sale was almost $3 million, with potential income tax at stake of nearly $1 million.


Staples Rodway considered there were reasonable arguments that the gain was not taxable, but the GST claim on the land and some other land-related activities related to the taxpayer, meant that the situation was not clear cut. This was especially so given 16 years had passed since purchasing the land.

The taxpayer was already subject to review by Inland Revenue who were aware of the property and were expected to take a close interest in the sale. There was tactical thinking required regarding how the gain would be treated on the taxpayer’s tax return. Based on Staples Rodway advice, given the amount at stake and the likely attitude of Inland Revenue (a prediction that turned out to be correct), it was decided that the gain would be returned as taxable income but that Staples Rodway, on behalf of the taxpayer, would issue a challenge to the tax return as filed to argue that the gain was not taxable.

Using this approach, the client was protected from the potential risk of penalties that could have applied if the gain had not been returned, and IRD assessed income tax on it.


When the dispute started, Inland Revenue argued under virtually every provision of Income Tax legislation available that the gain was taxable.

The taxpayer started the disputes process and presented arguments to the Disputes Review Unit attached to Inland Revenue head office, who agreed with the taxpayer in respect of almost all the arguments raised. However, they raised a new argument that the land was actually “purchased” only when the change in title was registered. By that point, the taxpayer had changed her intentions with the land and had shortly after told Inland Revenue she intended to develop the land in future. That is why Inland Revenue allowed her to claim the GST on the land.


The case, heard over three days, was reduced to the following questions:

  • What date was the land acquired? When the contract was signed, when the contract became unconditional or when the change in title was registered?
  • When she entered into the contract did she intend to both live in the property and then, at some future point, simply sell at a profit, with or without developing first?

Despite the acquisition taking place nearly 20 years before the trial date, the taxpayer presented her evidence strongly.


The judge found for the taxpayer on both points:

  • The land was purchased at the time the contract went unconditional, not when the change in title was registered.
  • At the time of the contract going unconditional the judge accepted that the taxpayer intended to live in the property for an indefinite length of time. It was not enough for Inland Revenue to allege that prices would be expected to increase over time and that this proved the taxpayer’s intention.

The Judge commented: “Most people intend eventually to sell their properties and the possibility of a sale is not sufficient to satisfy the requisite purpose or intention of resale”.

The Judge also helpfully commented that knowledge of property and involvement in property deals does not mean that all property you ever own is “tainted”.

This decision provides further support for taxpayers. While there is a general perception that there is no tax on land sales, there are many situations that Inland Revenue can apply the existing complex rules in an attempt to tax gains. This case (which is currently reported as Taxation Review Authority case TRA 003/15 [2016] NZTRA 07) provides further clarity over just where the boundaries lie.


Inland Revenue will not be appealing the decision. Needless to say the client is delighted with the win, and the fact this brings an end to the matter which has been underway since 2013. Even better is the peace of mind knowing that the courts have signed off on the gain from the sale being tax free.

This reinforces the benefit of taking professional advice from experienced advisors such as Staples Rodway. In this case the claim of GST on the land and statements made to Inland Revenue at the time the claim was made meant this was a difficult case. A careful review of the facts and application of the rules resulted in a great outcome for the taxpayer.

Did you find this article interesting? You can stay up to date on tax with regular email updates of Staples Rodway Tax Talk.

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