Understanding section CB6 of ITA 2007: Acquired for the purpose of disposal

Have you received a letter from the IRD customer and compliance service team (Audit Team) stating that certain income is taxable under CB6 of Income Tax Act 2007.
What are the basic principles of CB6: Acquired for the purpose of disposal.

Under s CB 6, an amount that a person derives from disposing of land is income of the person if they acquired the land:

• for one or more purposes that included the purpose of disposing of it, and/or
• with one or more intentions that included the intention of disposing of it.

The exclusion to this is residential land CB16 and business premises CB19.
CB16 is the one which is likely to be used by IRD customer and compliance services as their argument.
In terms of subdivision of land, the taxpayer may want to use CB16 as exclusion, but it has certain criteria to meet. If this is not met the commissioner may argue that amount of gain realised is taxable.

Over the years case law has derived certain principles. Let’s look at those principles.
TDS 22/21 TCO mentioned at 32
The adjective “residential” describes the noun “land”. It is the land that must be “residential”. The person must “occupy” the land as residential land. The word “occupy” does not imply permanence (but it does require something more than visiting a property that is occupied by someone else)
There is no requirement that the taxpayer must reside on the land for more than 50% of the time of ownership. The text of the provision does not refer to the taxpayer “residing” on the land (unlike the exclusion in s CB 17(1)) and does not refer to a “dwelling” (as s CB 16A does) or to a “dwellinghouse” (as s CB 16 does).

CB 17(2) residential land exclusion should also be investigated conjunction to that:

Section CB 17(2) does not require that the land was occupied as residential land “immediately before” the subdivision, only that the larger area of land was 4,500 square meters or less “immediately before” the land was divided.

*The above article is a high-level explanation of the methods of calculation, and there may be other technicalities/rules that are applicable. The complexity of the calculations can also vary. Please reach out to us if you have specific questions regarding your situation.

Please note that the above does not constitute specific tax advice and only intends to be a general advice. If you require specific advice related to your situation, please reach out to our tax consultant using the ‘contact us’ option.

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