Jeremy Tauri: Be aware of property tax

Be wary of tax consequence when purchasing houses.

Been swapping house-price sales at a dinner party recently?

The property market is this year's big topic ... again.

But given the increase in property transactions and the interest in property, being aware of tax consequences on such a large financial transaction is important.

The volume of property transactions in some areas has doubled compared with last year. The regions in particular are now experiencing transaction levels unseen since pre-global financial crisis times.

Tax can change the outcome of a financial plan greatly.

There is generally no capital gains tax on property. But if you're in the market, you need to take note of new rules.

If you sell a property within two years of buying it after October 1 this year, it will probably land you a tax bill.

From the start of the month, the bright-line test for sales of residential property comes into effect to help supplement the test of intention to make a profit from property sales.

The IRD has always had the ability to impose a tax when a property was bought with the intention of sale. But intention has proved difficult for the IRD to enforce and therefore levy tax.

There is an exemption if the dwelling is the main home and if the property is transferred on the death of a person or under a relationship agreement.

The calculation to work out the taxable portion is simple. This is just the cost of the property less its sale price. Tax is then calculated at the person's marginal tax rates, the same as any other income.

There has been debate on how the bright-line test could catch people whose personal circumstances change unintentionally, and must sell their investment property within two years, triggering a tax bill. That being said, there is always risk in any investment.

If you're planning to buy and sell property, get some advice from an accountant.