Your Tax Return – What is an investor, a speculator and a dealer?

Understand the difference. between a property investor, speculator and dealer from a New Zealand Accounting point of view..

Property Investor

If you’re an investor you buy a property to use it to generate ongoing rental income and not with any firm intent of resale. From an accounting perspective, the property is a capital asset and any later profit or loss from selling the property (viewed from an accounting perspective) is capital and isn’t taxable (apart from clawing back any depreciation, which is now recoverable).

Property investors sometimes refer to a “buy and hold” strategy. This approach is most likely to mean you are a property investor for New Zealand tax purposes.

Investors will investigate and analyse future revenue streams, and any gain made on the sale of the property is incidental. Their investment is soundly based on a return from the rental income.

Once accounting statements are produced, Investors pay income tax on their net rental income but generally not on the eventual sale proceeds of the property.

Note

The rules may be different if you’ve been associated with a person or entity involved in the business of building, dealing, developing or sub-dividing land.

Property Speculator

You might think accounting profits from selling property are always capital gains so you don’t have to pay New Zealand tax on them.  But, this isn’t always true. If one of your reasons for buying a property is to resell it, whether you live in it or rent it out, you’re speculating in property and your profit is likely to be taxable. And, if you sell that property at a loss, the loss may be tax-deductible. Our accounting services team is able to assist you in determining the best method of accounting for your particular needs.

If you’re a speculator you buy a property always intending to sell it. The property is treated like “trading stock” and your accounting profit or loss from selling the property is taxable. Speculating can be a one-off purchase and sale of a property.  Speculators may also receive rental income from the NZ property before they sell it.  

Property dealers or speculators will try to determine and analyse the property’s future price movements because that’s what the deal rests on. Any rental income is secondary.

To be a speculator, you need buy only one property with the firm intent of resale.
Dealers and speculators must pay income tax on any gain they make from reselling their property. If they declare a loss, it may be tax-deductible. They must also pay tax on rental income they may earn from the properties.

Property Dealer

If you’re a dealer you are similar to a speculator buying properties for resale, but you have established a regular pattern of buying and selling. This includes rental properties.

Some property buyers refer to a “buy and flick” strategy. This approach is most likely to mean you are a property speculator or dealer for tax and accounting purposes.

Dealers and speculators must pay income tax on any gain they make from reselling their property. If they declare a loss, it may be tax-deductible. They must also pay tax on rental income they may earn from the properties.

For more information regarding your rental property portfolio and how EZI Accounts may be able to assist you in recducing your accounting fees please give us a call.

Ph:o800TOOEZI

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3 thoughts on “Your Tax Return – What is an investor, a speculator and a dealer?

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