More than 100,000 investment or rental properties were sold in New Zealand in the last four years, of which just over 30,000 sales could incur tax under the bright-line regime, according to official data.
Inland Revenue released the data yesterday, following wide-sweeping housing announcements made on Tuesday by Prime Minister Jacinda Ardern, Finance Minister Grant Robertson, Parker and Housing Minister Megan Woods.
The Government plans to double the bright-line regime from five to 10 years later this year, following that system being introduced in 2015.
Inland Revenue information showed that between April 1, 2016 and March 31, 2020, 101,593 transactions were made which fell within the bright-line period.
Of those, around 33,020 transactions were "potentially taxable under the bright-line test", Inland Revenue said.
"Inland Revenue does focus on those customers where they may not have met their bright-line or other property tax obligations. The table provides an overview of activity by Inland Revenue addressing compliance with the bright-line provision for the period 2016-17 to 2019-20," it said.
No dollar amounts were put on the total value of those 100,000-plus sales or the 33,020 sales which were potentially taxable under bright-line.
Nor can IRD say at this stage how much could be collected by extending the bright-line regime from five to 10 years.
However, industry estimates ranged this week from $600 million to around $1.7 billion of extra income tax once the system is fully in place by 2025.
This week, Inland Revenue commented on the latest data released.
"The 2015-16 tax year was the first year the bright-line rules were in place and, due to the small number of transactions, Inland Revenue was able to review all property transactions where the bright-line may have applied.
"This review found 73 per cent compliance with the bright-line obligations after initial contact was made by Inland Revenue and prior to the balance of the cases being referred for audit," it said.
As at December 2020 out of 9126 transactions, potentially taxable under the bright-line rules 3070 required no further review; 1528 customers were contacted for further information to determine if bright-line rules applied for the 2018-19 tax year; 923 had a tax obligation that was not included in their tax return.
"Of these, 68 per cent voluntarily complied upon receiving contact from Inland Revenue and 351 audits have commenced. We will continue to receive information from customers for the 2019-20 year through to March 31, 2021," IRD said.
Asked what steps were being taken to enforce payment of the bright-line tax, it said:
"Inland Revenue now has information on all property sales in any year and analytics to support targeted intervention for high-risk property transactions. This enables us to address compliance with the property taxation rules and make sure customers understand their obligations.
"We use a variety of approaches to support customers in meeting their bright-line obligations. This includes marketing, community engagement, and enforcement action where necessary," it said.
Asked what happened to those who had not paid the tax but were potentially liable, IR said it would "be progressively following up with these customers to gather further information, to ascertain if they have a bright-line obligation. For those with a bright-line obligation, we will then work directly with these customers and their agents to ensure they correctly return their bright-line income".
On Tuesday, Robertson said property investors now make up the biggest share of buyers in the market so it's essential the Government takes steps to curb rampant speculation.
"Extending National's bright-line test and removing interest deduction loopholes for investors will dampen speculative demand and tilt the balance towards first home buyers.
"The New Zealand housing market has become the least affordable in the OECD. Taking action is in everyone's interests as continuing to allow unsustainable house price growth could lead to a negative hit to the whole economy.
"House price increases of the magnitude we have seen in recent months are not only harmful to affordability, they also present a risk to economic stability.
"Our plan also encourages investment in new builds. To support our goal of increasing supply, we will keep the bright-line test for new-build investment properties at the current five years," Robertson said.
"This will give Kiwis a better chance at purchasing their first family home. I want to stress that the bright-line test does not and will not apply to the family home," he said.
Parker also announced the removal of interest deductibility, terming them "loopholes".
"The tax system favours debt-driven residential property investment over more fully taxed and more productive investments," his statement said. To reduce investor demand for these investments, the Government will remove the advantage investors have over first home buyers.
"Cabinet has agreed to remove the ability for property investors to offset their interest expenses against their rental income when they are calculating their tax," Parker said.
Ministers were also considering closing a loophole on interest-only loans to speculators, Parker revealed.
The IRD says if investors sell a residential property they have owned for less than five years currently, they may have to pay income tax. This rule also applies to New Zealand tax residents who buy overseas residential properties.
But it doesn't capture the main home, inherited property, or if you're the executor or administrator of a deceased estate.