IRD ramps up investigations yet again

Investors whose property transactions may have been a little over-vigorous during the boom will not be able to relax because the boom is over.

Tuesday, November 3rd 2009, 1:16PM

by Rob Hosking

The Inland Revenue Department (IRD) is watching property investors with "form" who might have put sales on hold because of the downturn, says the department's assurance manager (investigations) Richard Philp.

The IRD began a stepped-up auditing programme of property investors following a decision by then Finance Minister Michael Cullen to provide an extra $14.6 million to the department, over three years, for additional enforcement of existing property investment rules.

The IRD has identified just under 2,000 people who have bought and sold six or more properties over a period of four years, who they're keeping an eye on, says Philp.

Of this group, 312 have bought and sold 20 or more properties.

"Overall, it is estimated there is up to $214 million potential tax associated with transaction for these 2,000 ‘speculators'."

And a number are currently sitting on their investments, having been "trapped" by the falling market, he says.

"Inland Revenue will therefore be monitoring future transactions as developers and speculators who have been ‘trapped' by the falling market gear up to quit their purchases [both dwelling and sections] as the market conditions improve."

The other factor is increasing work aimed at "off-the-plan" investments. A number of investors appear under the impression these investments are not taxable because the title has not been passed over.

That is wrong, Philp says, if the investor intends to sell the purchase for gain.

"It is bought and sold and has value and that value can rise and fall just as existing property does. Inland Revenue is of the view that these transactions are taxable in the same manner as any other property trading activity."

The IRD has put an extra 40 investigators onto the property area, he says, and there are just over 390 cases being investigated at present.

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

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