Or the potential for a nightmare?
New Zealanders’ material aspirations have often revolved around property, whether it’s the traditional kiwi quarter acre, the bach or a place in the country — also known as a lifestyle property. There can be, however, all sorts of issues associated with lifestyle properties; this article highlights some issues when you’re considering either the purchase or creation of a place in the country.
The general concept of a lifestyle property is that of ‘a bit of land’ in the country, but obtaining a more precise definition than that is not so simple. While there’s general agreement between property professionals that the land should be in the country, have a dwelling and ‘curtilage’ (the surrounding 4,500m2 site) and be at least around one hectare in size, there‘s some division over whether there needs to be a taxable activity carried out. This last area contains some fish hooks.
A taxing aspect
The potential for income tax and GST implications on a lifestyle block can cause worries for both a landowner looking to create such a block, as well as the eventual purchaser. A landowner creating a lifestyle block faces tax issues, as well as the risk of being classed as a developer by the IRD.
GST can cause potential pitfalls. Where a landowner claimed GST on the purchase and made taxable supplies from the property then GST must also be accounted for on the sale of that land. GST, however, will be zero if the land is sold as a going concern to a purchaser, also registered for GST.
In addition, recent changes to the GST Act have also allowed the transaction to be
- Both parties are registered for GST
- The purchaser will be using the land for the purpose of making taxable supplies, and
- Will not be using the land as a principal place of residence.
The latter point can cause uncertainty, but generally the dwelling and curtilage will be treated as a ‘separate supply’ to the rest of the land, and that separate supply will be exempt from GST. That means that the rest of the land, which would not ordinarily be used as a principal place of residence, can then help qualify the transaction for zero-rated status.
Rights (and wrongs)
It‘s not uncommon for a lifestyle property to have easements registered against it. These either contain restrictive land covenants protecting the rights of the adjoining land owner, or supply easements for power and water in favour of the property. There’s more on this in Fineprint, Issue 56, Spring/Summer 2011.
In a nutshell, a covenant is a restriction placed on the land by a previous owner in favour of an adjoining owner. It may prevent the property owner from, amongst other things, complaining about noise or smell from an adjoining farm or restrict the location/type of house to be erected.
Thought must be given about access for essential utilities, and whether that access is legally recorded as being in place for the property’s benefit. For example, as lifestyle properties are often not on town supply there will need to be a right to source water which should be contained in an easement registered against the property’s title.
So to answer the original question — yes, buying a lifestyle property can fulfil part of the kiwi dream but care must be taken to ensure that it doesn’t become a nightmare. As is always the case when dealing with property, talk with us at the start of the process and before you sign any contract.
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Copyright, NZ LAW Limited. Editor: Adrienne Olsen. E-mail: email@example.com. Ph: 029 286 3650.