Disposal of buildings and land within 10 years of acquisition

Section CZ 26 of the Income Tax Act 2007

Under sections CB 6 to CB 12 of the Income Tax Act 2007, the proceeds from land purchased with the intention or purpose of sale are taxable. Broadly speaking, a seller may also derive income from the disposal of land if it is disposed of within 10 years of purchase or within 10 years of improvements being made to the land, and the seller is, or is associated with, a person in the business of dealing in, developing or building on land, or if there has been non-minor development of the land within 10 years of its acquisition.

These provisions could apply to Government purchases of land under its "red zone compensation package", if the person acquired the land within 10 years of accepting the Government's offer of purchase.

Key features

The tax rules relating to disposal of land within 10 years of acquisition, or improvement, or following non-minor development do not apply to Crown purchases of land made under the Government's "red-zone compensation package".

Detailed analysis

The context of the Crown's purchases of buildings and land under section 53(1) of the Canterbury Earthquake Recovery Act 2011, as part of the "red-zone compensation package", is to recognise that a disastrous event has rendered the buildings and land substantially damaged and unusable.

Section CZ 26 ensures that the rules in sections CB 9 to CB 12, which relate to disposals of land with 10 years of the land being acquired, or certain disposals following the development or division of the land, do not apply to Crown purchases of land made under section 53(1) of the Canterbury Earthquake Recovery Act 2011. A person who accepts the Crown's offer of purchase will not be considered to derive income from the disposal of land under those sections.

The exception does not apply to land that was initially acquired with the intention of resale and development. The general rules in sections CB 6 and CB 7 will continue to operate. However the roll-over relief provisions in section CZ 25 may apply in these circumstances.

There is no requirement that a person to whom the rules in sections CB 9 to CB 12 would have applied, if they were not excepted by the new section CZ 26, must purchase new land with the monies received under the compensation package. However if they do subsequently acquire new land, the 10-year period provisions in sections CB 9 to CB 12 may start afresh for the newly acquired land.

Application date

The amendments apply from 4 September 2010.