District Plans are undergoing review all over New Zealand – from Invercargill to the Far North, land is being rezoned, which changes what can happen as a permitted activity on the property. This has obvious consequences for land use, however there is a less obvious tax implication which all property owners need to be aware of.
Property owners who have benefitted, or are likely to benefit, from a rezoning need to be aware of their tax requirements under the Income Tax Act 2007. A rezoning can either be due to a private plan change, or a rezoning introduced by the Council. Situations where a benefit is likely to arise include where rural land is rezoned to permit some form of urban activity, such as residential, commercial or industrial. Other examples would include zones which allow an intensification of use, for example a suburban residential zone to a high-density residential zone.
The Income Tax Act 2007 includes a rule (at CB 14), which means that any increase in land value due to a rezoning, or potential increase as a result of a likely zone change, is classed as income that is taxable.
Any land that has been in the same ownership for ten years before it is 'disposed of' (determined to be when the sale of the land is unconditional, not at the date the change of ownership occurs) is exempt from these provisions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.