Television contestants may have to fork out part of profits to Inland Revenue

Contestants in Television New Zealand's new hit DIY reality show may face tax bills of many thousands of dollars.

If they succeed in their quest of squeezing a juicy profit out of the do-up homes purchased to take part in the show, a tax demand for up to 33 per cent of the earnings could be on its way from Inland Revenue.

The format for Our First Home is that three mum-and-dad couples invest hundreds of thousands of dollars to eject their offspring from the family nest. Run-down houses have been bought in West Auckland for around $500,000 each.

This is different from TV3 show, The Block, for which the properties have been purchased by the production company.

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Viewers of Our First Home watch the tribulations of the parents, their adult child and the child's partner as they renovate and sell the house. The profits will be used as a deposit towards the kids' first homes.

The family with the greatest percentage profit will be given an additional $100,000 in prize money. The renovation budget and building materials are provided by TVNZ, and the show's producers, Eyeworks, and sponsors.

A TVNZ spokeswoman said, when asked if the houses were purchased by individuals, family trusts or companies, "...the purchase specifics remain confidential to the owners.

"Profits from the sale of the houses go back to the owners - as such the owners will be responsible for associated taxes, if any."

A TV3 spokeswoman said, "The Block NZ contestants don't own the houses so face no tax liability."

A tax expert, who asked not to be named, told the Herald that under the Income Tax Act, "If you buy a house with a purpose or intention of sale, prima facie you are taxable".

Living in the house provides an exemption from that rule for the legal owners, but the exemption does not apply if they have a pattern of buying and selling houses.

And if the legal owners also own a home elsewhere then it could be hard to talk their way out of a tax bill for the do-up's profits. Depending on their other income, they could face a tax bill of up to 33 per cent of the profit.

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This is the highest of the four income tax rates and applies to the portion of a person's personal income over $70,000 a year. The second highest rate, of 30 per cent, applies to the portion between $48,001 and $70,000.

"What this highlights," the tax expert said, "is that we say we don't have a capital gains tax in New Zealand; well, we actually do, we just have it for certain classes of assets."

Tax rules
• Profit on sale of a house is taxable income if it was bought with the intention of selling
• Exemption: if it is the legal owners' residence
• Exemption lost if the owners have a pattern of buying and selling houses

Tax rates
10.5%
on the portion of personal income up to $14,000
17.5%
$14,001-$48,000
30%
$48,001-$70,000
33%
over $70,000