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Income Tax Act 2007

Recharacterisation of certain transactions - Distribution, transmission, and gifts of property

FC 5: Land transferred to close relatives

You could also call this:

“Rules for tax on inherited land from close relatives”

When someone dies and their land is transferred to a close family member, there are special rules about how this transfer is treated.

If the person who died would have had to pay income tax on selling the land, the close relative who receives it doesn’t have to pay that tax right away. This applies even if the land goes through an executor or administrator first.

However, if the close relative sells the land within 10 years of the person who died getting it, and they have to pay income tax on the sale, there are rules about how much the land cost them. The cost is calculated as:

  1. The amount the person who died paid for the land, plus
  2. Any other money spent on the land by the relative, the person who died, or the executor or administrator, as long as they haven’t already claimed that money as a tax deduction.

This helps figure out how much profit the relative made when selling the land, which affects how much tax they might need to pay.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516387.

Topics:
Money and consumer rights > Taxes
Housing and property > Buying and selling homes
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Part F Recharacterisation of certain transactions
Distribution, transmission, and gifts of property

FC 5Land transferred to close relatives

  1. This section applies in the circumstances described in section FC 1(1)(a) or (b) when land is transferred on a person’s death to a close relative of the person.

  2. Sections CB 9 to CB 11 and CB 14 (which relate to the disposal of land) do not apply to the transfer of land, including any intervening transfer to an executor or administrator that, if it had been disposed of by the deceased person, would have resulted in income under any of those sections.

  3. If the land is transferred to a person who disposes of it within 10 years of its acquisition by the deceased person, and the person derives income under any of sections CB 9 to CB 11 and CB 14, the cost of land to the person is—

  4. the cost of the land incurred by the deceased person; and
    1. all other expenditure incurred by the person, the deceased person, or the administrator or executor of the deceased person, as applicable, for which no deduction has been allowed.

      Compare
      Notes
      • Section FC 5(3)(b): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on , by section 104(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).