Outside the land sale rules, but still taxable?

Angela Hodges • 26 August 2026

Inland Revenue’s revised view of section CB 3 could widen the tax net for property sales, developments and subdivisions.

Inland Revenue has signalled a significant shift in how it may tax profits from property sales. In its revised draft Interpretation Statement, PUB00519, Inland Revenue argues that a land sale can be taxed under the broader profit-making undertaking or scheme provision in section CB 3 of the Income Tax Act 2007, even where the specific land sale rules do not apply.


Inland Revenue’s view is that the specific land sale rules are not a complete code. A sale may therefore still be taxable under section CB 3 if it forms part of a profit-making undertaking or scheme. This is a significant departure from Inland Revenue’s earlier position and potentially increases the tax exposure arising from property developments, subdivisions and substantial renovation projects.


More controversially, section CB 3 could apply even where a sale qualifies for a residential, business premises, farming or investment exclusion under one of the specific land sale provisions. In other words, falling outside of, or within an exclusion from, the land sale rules may not mean the sale is not taxable.


What does section CB 3 tax?

Section CB 3 can tax any profit from carrying on any plan or undertaking done by a person with a dominant intention to make a profit. For example, section CB 3 could tax a one-off trade of an asset such as a car, or buying gold, or crypto.

Although section CB 3 is not specifically a land sale provision, Inland Revenue considers its wording is wide enough to also apply to tax land sales.


This is important because section CB 3 can apply to a project that begins well after the property was acquired. It is not limited to circumstances where the taxpayer acquired the property with an intention or purpose of resale. A property initially acquired as a home, rental investment, farm or business premises may later become part of a profit-making undertaking or scheme to bring it into the scope of section CB 3.


Inland Revenue’s previous position

In its December 2024 Questions We’ve Been Asked, Inland Revenue considered sections CB 12 and CB 13 to be the specific provisions governing undertakings or schemes involving the development or division of land.


Section CB 12 generally applies to an undertaking or scheme involving development or division that:

  • Begins within 10 years after the land was acquired; and
  • Involves development or division work that is more than minor.


Section CB 13 can apply where an undertaking or scheme begins more than 10 years after acquisition and involves significant expenditure on specified development or division work.


Inland Revenue’s previous reasoning was that:

  • Sections CB 12 and CB 13 were specific provisions dealing with development and subdivision undertakings.
  • Section CB 3 was a more general profit-making scheme provision.
  • A specific provision ordinarily takes priority over a general provision.
  • Section CB 3 should therefore not apply to an undertaking or scheme involving the development or division of land if the undertaking was within the subject matter of sections CB 12 and CB 13.


Under that approach, if a subdivision or development undertaking did not satisfy the requirements of sections CB 12 or CB 13, section CB 3 should not generally have applied as an alternative way of taxing the same activity.


Inland Revenue’s new position

Inland Revenue has changed its view. Inland Revenue has now adopted the broader view that the specific land sale rules do not form a complete code for taxing land disposals, and that section CB 3 can operate as a potential catch-all for profit-making property projects that fall outside the specific land sale rules.


Inland Revenue’s revised approach is:

1.     The specific land sale provisions must be considered first.

2.     If a specific land sale provision applies, it takes priority over section CB 3.

3.     If no specific land sale provision applies, section CB 3 needs to be considered.

4.     An exclusion from a specific land sale provision does not automatically prevent section CB 3 from applying.

5.     Section CB 3 may apply where there is a profit-making undertaking or scheme that is separate from the capital use of the land protected by the exclusion.


What about the land sale exclusions?

Whilst there are specific exclusions in the land taxing provisions (e.g., residential land, farmland, business premises, investment land etc), there are no exclusions for section CB 3.


The exclusions protect the capital use of the land. For example, they may protect land genuinely used as a residence, farm, business premises or long-term investment.


Inland Revenue’s argument is that the exclusions do not protect a separate undertaking or scheme entered into for the dominant purpose of making a profit.


The distinction is between:

  • Selling land that has been used as a capital asset; and
  • Carrying out a separate profit-making project involving that land.


If the owner merely sells a home, farm, rental property or business premises at the best available price, section CB 3 should not apply. If the owner undertakes a separate project to create something new or substantially transform the property for sale, section CB 3 may apply to transform what would otherwise be a capital sale to taxable income.


The three requirements of section CB 3

Inland Revenue identifies three requirements that must be satisfied before section CB 3 can apply to a land disposal.


1. The disposal must be part of an undertaking or scheme

An undertaking or scheme is a plan, design or programme of action devised to attain an end result. It requires a coherent plan involving a series of steps directed towards that result. This is not a high threshold.


A one-off property project can be an undertaking or scheme. The taxpayer does not need to be carrying on a property development business or have undertaken similar projects previously.


2. The dominant purpose must be making a profit

A taxpayer may have more than one purpose for undertaking a project, but making a profit must be the dominant or main purpose.


The focus is on the taxpayer’s subjective purpose when the undertaking or scheme begins, not the purpose envisaged when the land was originally acquired. A new undertaking or scheme can begin many years later.


3. The sale must be more than the mere realisation of a capital asset

Section CB 3 should not tax the ‘mere realisation’ of a capital asset, including realising an asset at its best advantage.


A property owner is entitled to take reasonable steps to maximise the sale price or make the property more attractive to purchasers.


The distinction is whether the taxpayer is:

  • Merely disposing of the existing asset in the most advantageous way; or
  • Creating something new or significantly changing the character of the asset.


The boundary is not always clear.


Activities likely to be mere realisation

Inland Revenue considers the following activities are more likely to remain the mere realisation of a capital asset:

  • A subdivision that does not involve significant work.
  • Minor work required to obtain subdivision consent.
  • Undertaking ordinary repairs before sale.
  • Repainting and recarpeting.
  • Replacing fixtures.
  • Updating a kitchen or bathroom.
  • Completing delayed maintenance.
  • Other renovations typically undertaken to prepare a property for sale.


The fact that work is undertaken to increase the sale price does not, by itself, make the resulting gain taxable under section CB 3.


Activities likely to go beyond mere realisation

An undertaking or scheme is more likely to go beyond mere realisation where it involves, for example:

  • An extensive subdivision with substantial infrastructure.
  • Constructing one or more new dwellings.
  • Completely rebuilding or transforming an existing dwelling.
  • Constructing a substantial extension.
  • Fundamentally changing the property’s size, layout, use or character.
  • Creating a materially different asset for sale.


This does not mean that every new build or substantial renovation is taxable. The project must still have been undertaken for the dominant purpose of making a profit.

  • Example 1: a builder constructs their own home.

    Sylvia carries on a business of erecting buildings. She purchases land, constructs a house and lives in it as her home. She later sells the property within 10 years after completing the improvements.


    Section CB 11 would ordinarily be relevant because Sylvia is in the business of erecting buildings and sells within 10 years after completing the improvements.


    However, the residential exclusion applies because Sylvia genuinely used the property as her residence.


    On the facts in PUB00519, section CB 3 also does not apply.


    Although building the house was an undertaking or scheme, Sylvia did not undertake the project for the dominant purpose of making a profit. Her purpose was to create a home in which to live. The later sale was the mere realisation of her capital asset.


    However, the result could be different if the evidence showed that Sylvia built the house primarily to sell it for a profit and any occupation of the property was temporary or incidental to that plan.


    In that case, the residential exclusion would not prevent section CB 3 from applying. Inland Revenue would examine whether there was a separate profit-making undertaking or scheme involving construction and sale.

  • Example 2: demolishing a home and building two new dwellings.

    Jensen has lived in his home for 12 years. He decides to demolish the existing house, subdivide the land into two lots and construct two new dwellings.


    Jensen intends to live in one dwelling and sell the other.


    Section CB 12 does not apply because the undertaking begins more than 10 years after Jensen acquired the land.


    The example assumes section CB 13 does not apply because the relevant development or division work does not meet its significant expenditure requirements.


    Under Inland Revenue’s previous approach, there was a stronger argument that section CB 3 could not be used to tax a subdivision falling outside sections CB 12 and CB 13.

    Under Inland Revenue’s revised position, section CB 3 applies.


    Constructing the new dwelling for sale creates something new on the land and fundamentally changes the character of that part of the property. It goes beyond merely realising the existing land at its best advantage.


    Jensen’s purpose is tested in relation to the part of the land intended for sale. Although Jensen intends to live in one of the new dwellings, his dominant purpose in constructing the second dwelling is to make a profit from its sale.

  • Example 3: acquiring neighbouring land for resale.

    Sam owns land on the outskirts of a growing town. He becomes aware that a property developer is looking for a large block of land in the area.


    Sam acquires the neighbouring farm with the intention of combining it with his existing land and selling both properties to the developer for a profit.


    Section CB 6 applies to the sale of the neighbouring farm because Sam acquired that land with the purpose or intention of disposal.


    Section CB 3 could also apply because the acquisition and proposed sale form a coherent profit-making undertaking or scheme. However, because section CB 6 is the more specific land sale provision, the sale of the neighbouring farm should be taxed under section CB 6.


    Neither section CB 6 nor section CB 3 applies to Sam’s original land.


    Sam did not acquire the original land with a purpose or intention of disposal, so section CB 6 does not apply. Its sale is also the mere realisation of an existing capital asset at its best advantage, rather than an amount derived from the profit-making scheme involving the acquisition of the neighbouring farm.


    This demonstrates that the relevant undertaking or scheme, and the land subject to it, must be identified carefully. A profit-making scheme involving one property does not automatically make the sale of all related land taxable.

Summary

The key change in PUB00519 is Inland Revenue’s conclusion that the land sale rules are not a complete code. This has significantly increased the risk for landowners when they are looking at ways to improve their return on sale.


Sections CB 12 and CB 13 were previously regarded as the specific and comprehensive provisions governing undertakings or schemes involving land development or subdivision. Inland Revenue now considers those provisions supplement section CB 3 rather than replace it.


More broadly, the failure of any specific land sale provision to apply does not prevent section CB 3 from applying.

Inland Revenue accepts that, in most cases, a sale qualifying for a land sale exclusion should also fall outside section CB 3. The ordinary sale of a home, farm, business premises or investment property should generally remain the mere realisation of a capital asset.


The risk arises where the taxpayer undertakes a separate project for the dominant purpose of making a profit and creates something new or significantly changes the property’s character. For example, where a taxpayer:

  • Subdivides long-held land.
  • Constructs a new dwelling for sale.
  • Demolishes and replaces an existing dwelling.
  • Undertakes a major extension or conversion.
  • Substantially transforms a rental property before sale.
  • Carries out a one-off project that has the features of a commercial property venture.


Anyone considering subdividing, constructing or substantially renovating a property for sale should obtain tax advice before the project begins. Early advice can help identify the relevant undertaking or scheme, document the taxpayer’s purpose, determine when the scheme starts and ensure appropriate valuation evidence is retained.


If you’re considering subdividing, developing or substantially renovating a property for sale, contact us before the project begins. We can help you understand the potential tax implications and how the rules may apply to your situation.



Disclaimer

The information provided in this article is general in nature and does not constitute personalised tax advice. The proposed FBT reforms are subject to legislation and may change before implementation. You should seek professional advice tailored to your specific circumstances before making any business or tax decisions based on this content.

World map showing continents and oceans with blue-toned land and water.

RAM Expanded: A More Practical Approach to Taxing Foreign Shares

by Angela Hodges • 21 July 2026
New Zealand’s foreign investment fund (FIF) rules have long caused problems for migrants holding overseas shares, particularly US citizens and Green Card holders living in New Zealand. The United States generally continues to tax these individuals on their worldwide income even when they are tax resident in New Zealand. At the same time, New Zealand’s FIF rules can impose tax on deemed income that does not match the income or gains recognised in the United States. This mismatch can create cash flow problems and, in some cases, double taxation because the tax paid in one country may not be available as a credit in the other. A new revenue account method (RAM) was introduced to address these concerns. However, the original rules were narrowly targeted. Following lobbying from tax advisers, migrants, investors and others affected by the rules, the Government announced a significant expansion as part of Budget 2026. These changes have already been widely discussed. In this article, we explain what they mean, particularly for US citizens living in New Zealand, and provide an update on where they have reached in the legislative process. Why are the FIF rules difficult? The FIF rules generally apply when a New Zealand tax resident holds shares in a foreign company. The most commonly used calculation method is the fair dividend rate (FDR) method. Broadly, FDR taxes 5% of the opening market value of a foreign share portfolio, together with an adjustment for certain shares bought and sold during the year. This can produce taxable income even where: no shares have been sold; no dividends have been received; the investment has produced no cash; or the investment has ultimately fallen in value or failed. This can be particularly harsh for people holding shares in an overseas private company or start-up. Tax may be payable each year on deemed income, even though the company has not paid a dividend and the shares cannot readily be sold to fund the tax. It is also problematic for US citizens. New Zealand may impose tax each year under FDR, while the United States may not tax the gain until the shares are sold. Because the two countries are taxing different amounts at different times, effective foreign tax credits may not be available. RAM: a “pay when you sell” method The new RAM taxes qualifying foreign shares on a realisation basis. Instead of being taxed each year on deemed income, an eligible taxpayer is generally taxed on: dividends received; and 70% of the gain realised when the shares are sold. A corresponding 70% of a realised loss may be recognised, although the use of RAM losses is restricted. For example, if an eligible taxpayer receives a $1,000 dividend and realises a $100,000 gain, their taxable RAM income would generally be: $1,000 dividend + 70% of the $100,000 gain = $71,000. RAM does not impose tax at a flat rate of 70%. Rather, 70% of the gain is included in the person’s taxable income and taxed at their applicable marginal tax rate. This approach is much closer to the capital gains regimes familiar to migrants from countries such as the US. It also means the taxpayer generally has cash from the sale available to fund the resulting tax. RAM was introduced but the initial rules were narrow The original RAM legislation applies from 1 April 2025. However, it is broadly limited to recent migrants and returning New Zealanders who: became fully subject to New Zealand tax on or after 1 April 2024; and had been non-resident for at least five years before becoming resident. Ordinary RAM generally applies only to qualifying unlisted foreign shares acquired before the person became a New Zealand tax resident. An extended version of RAM can cover listed and unlisted shares held by people who remain liable to tax in another treaty country because of their citizenship or right to live and work there. This is principally aimed at US citizens and Green Card holders. However, under the enacted rules, these individuals must still satisfy the recent-migrant requirements. This excludes US citizens who have already lived in New Zealand for several years, even though they face the same double-tax problem. Budget 2026 proposes a major expansion Following lobbying by the tax industry and people directly affected by the rules, the Government announced a broader RAM regime in Budget 2026. The changes would: allow all New Zealand residents to use RAM for qualifying unlisted foreign shares; allow qualifying US citizens and others subject to citizenship-based taxation to use extended RAM for listed and unlisted foreign shares, regardless of when they migrated to New Zealand; and increase the FIF de minimis threshold from $50,000 to $100,000. The removal of the recent-migrant restriction from extended RAM will be particularly helpful for US citizens and Green Card holders who have lived in New Zealand for many years. Once enacted, these taxpayers should be able to align their New Zealand tax more closely with the time at which the United States recognises the gain. This should reduce cash flow problems and the risk of tax being paid in both countries without an effective foreign tax credit. The expansion of ordinary RAM will also help New Zealand residents holding shares in overseas private companies. Instead of potentially paying tax each year on an investment that produces no cash, tax would generally arise when a dividend is received or the shares are sold. The de minimis threshold is also increasing Individuals generally do not have to apply the FIF rules where the total cost of their relevant foreign investments does not exceed $50,000. The Government proposes increasing this threshold to $100,000 from 1 April 2026. This should remove many smaller investors from the FIF regime, significantly reducing their compliance costs. The Budget changes are not yet law The expanded RAM rules and the $100,000 de minimis threshold were not included in the Budget night legislation and have not yet been enacted. We expect these changes to be included in the 2026–27 Annual Rates Bill later in 2026. If enacted as proposed, they should apply from 1 April 2026. The detailed legislation will be important. In particular, it should confirm the final eligibility requirements and whether the expanded RAM will be available to companies as well as individuals and qualifying trusts. Until then, taxpayers should distinguish between: the original, narrowly targeted RAM rules, which are already law; and the broader Budget 2026 changes, which remain proposals. Is RAM necessarily the best method? RAM will not always produce the lowest amount of New Zealand tax. FDR may be more favourable where an investment increases significantly in value because annual FIF income is generally based on 5% of opening value. Under RAM, 70% of a realised gain becomes taxable when the investment is sold. The method chosen can also have longer-term consequences. It may not be possible to move freely between RAM and the existing FIF methods, and leaving RAM may trigger a deemed disposal. The choice should therefore be made after considering: the nature and expected performance of the investments; whether the shares are listed or unlisted; when they were acquired; the taxpayer’s New Zealand residency history; the taxpayer’s US tax obligations; the availability and timing of foreign tax credits; and the treatment of losses. A welcome and practical change The proposed expansion of RAM is a welcome response to concerns raised by the tax industry and the people directly affected by the FIF rules. It should reduce the risk of taxpayers having to fund tax on income they have not received, provide much-needed relief for long-term US citizens living in New Zealand and make New Zealand a more attractive place for migrants and returning New Zealanders to live and invest. However, the rules are complex, and the choice of method matters. US citizens and other affected investors should review their portfolios before preparing their FY26 tax returns and obtain coordinated New Zealand and overseas tax advice. Contact us if you need assistance. Disclaimer The information provided in this article is general in nature and does not constitute personalised tax advice. The proposed FBT reforms are subject to legislation and may change before implementation. You should seek professional advice tailored to your specific circumstances before making any business or tax decisions based on this content.

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by Angela Hodges • 27 January 2026
The Government has recently released a proposal that would fundamentally change how shareholder loans are taxed in New Zealand (Officials’ Issues Paper Improving taxation of loans made by companies to shareholders). At its core, the proposal could turn loans from a company to shareholders into a deemed dividend. Broadly, where a company advances funds to a shareholder and that loan is not repaid within a specified period, the outstanding balance would be treated as taxable income to the shareholder, most likely as a deemed dividend. This would apply to new loans made on or after 4 December 2025, with a proposed $50,000 de minimis per company (not per loan). This would mean that, for example, money taken out of a company by shareholders and left in an overdrawn current account could be treated as taxable income for the shareholders. Alongside this, Inland Revenue proposes a separate rule for companies that are removed from the Companies Register. Any shareholder loan still outstanding at the time of removal would be taxed at that point, on the basis that these loans are frequently never repaid and Inland Revenue has no practical way to recover tax once the company no longer exists. The stated problem: large loans that are never repaid Inland Revenue’s explanation for these changes relies on the concern that shareholders are taking funds out of the company, not declaring dividends, and not paying the funds back. The concern is not ordinary short-term lending. It is large shareholder loan balances that: build up over many years, fund private consumption, are never realistically repaid, and are often abandoned when a company is liquidated or removed from the register. From Inland Revenue’s perspective, these arrangements allow shareholders to enjoy company profits without ever paying shareholder-level tax, while IRD has (apparently) no effective recovery mechanism once the company disappears. That concern is understandable. However, the difficulty lies in how far the proposed solution strays from that original framing and the practical reality of how to implement the proposal. The $50,000 de minimis tells a different story Despite repeated references to very large balances and long-term non-repayment, the proposed rules would apply once shareholder loans exceed a $50,000 de minimis. This threshold applies to the company, so it will include all shareholder loans, not on a loan-by-loan basis. That threshold is not particularly high in the context of owner-managed businesses and does little to confine the rules to the behaviour Inland Revenue says it is targeting. In practice, the proposals could capture many ordinary commercial arrangements that bear little resemblance to the “never repaid” loans highlighted in IRD’s communications. New Zealand’s deliberate departure from Australia This tension becomes clearer when compared with Australia. Australia is cited as a model for taxing shareholder loans, but the Australian regime includes a critical safeguard: a commercial loan exemption. Where a shareholder loan is structured and documented on commercial terms, it is not treated as a disguised (or deemed) dividend. Inland Revenue has rejected adopting a similar exemption for New Zealand. The Issues Paper states that a commercial loan carve-out would be too easy to manipulate and would undermine the integrity of the regime. That decision has far-reaching consequences. It means that even a genuinely commercial loan, indistinguishable from third-party debt, remains exposed to the proposed deemed dividend rules purely because the borrower is also a shareholder. When a “loan” is taxed like income but still behaves like a loan Rejecting a commercial loan exemption also creates a series of unresolved technical and practical issues. If a shareholder loan is deemed to be income for tax purposes, but continues to exist legally, several questions follow: What happens to interest? Is this still taxable income for the company? Remember that, for tax purposes, the loan has been repaid via a deemed dividend. How are repayments treated? If the shareholder later repays the principal, should there be a deduction available to the shareholder for that repayment? i.e., to reverse the tax impact of the deemed dividend? What about future dividends? At this stage, the deemed dividend appears to be a tax fiction. The retained earnings remain in the company for accounting purposes. Unless the deemed dividend is matched by a reduction in retained earnings or tracked some other way, the same underlying profits could be distributed again later as an actual dividend — and taxed again in the ordinary way. What this would mean in practice From a practical perspective, the proposals would mean that overdrawn shareholder current accounts could be treated as taxable income for the shareholder, rather than simply being viewed as loans that remain outstanding. Inland Revenue has framed the changes around situations where large shareholder loans are not repaid, and shareholder-level tax is not ultimately collected. The proposed rules would apply more broadly than those scenarios, including to loans that are documented, interest-bearing, and intended to be repaid. As the proposals currently stand, further guidance will be needed on how deemed income amounts interact with ongoing loan balances, interest payments, repayments of principal, and future dividends funded from the same company profits. These interactions will be important in determining the overall tax outcome. If you would like to understand how these proposed changes could affect your business or existing shareholder loan arrangements, please get in touch with the team at NZ Tax Desk.  Disclaimer: The information provided in this article is general in nature and does not constitute personalised tax advice. You should consult with a qualified tax adviser familiar with both New Zealand tax rules and any relevant overseas tax systems before making decisions based on this content.

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