Do you want to buy and sell properties for profit?

21 December 2017


Do you want to buy and sell properties for profit?

GST and Zero Rating

If you trade residential properties, then you will have to register for GST once you have a continuous taxable activity.  This means that you can claim GST on purchase costs that have GST but you also have to pay GST on the sale. 

If you do a one-off trade, then this is not a continuous taxable activity.  Therefore you would not be required to register for GST.  But there can be a fine line, and it is often difficult to determine, if the trade will be a one-off or if you are likely to do numerous property trades, thus becoming continuous.  I suggest seeking professional advice from a property accountant on this subject and the best approach is to be honest.  If you intend on buying numerous properties to do up and sell for the profit, then you should GST register at the start.

For long term residential property investors, there is no GST, so the above comments are just for property traders.

Zero rating – Over the last year we have heard about a lot of mistakes around the Compulsory Zero Rating (CZR).  Real Estate agents commonly get this wrong and a few recent forum posts on even show lawyers and non property accountants getting this wrong.  If both the vendor and purchaser are GST registered, then the sale will be zero rated for GST.  Therefore if you are a GST registered purchaser and the vendor is GST registered, you should be making any offer for the GST exclusive amount, plus GST (if any).

So for example, you are GST registered and purchasing a section from a developer.  The developer is advertising the section for $240,000.  You want to offer $230,000.  You would therefore work out the GST exclusive value $200,000 ($230,000 / 1.15) and offer on the contract $200,000 plus GST (if any).  As the developer will be GST registered, the sale is then Zero Rated, so you would pay $200,000 but can’t claim back the GST, and the vendor would receive $200,000 but have no GST to pay to IRD.

Following the example above, some recent mistakes I have heard of are the contract being written at $230,000 inclusive of GST.  This sale would still be Zero Rated, and Zero Rated at the $230,000.  So the purchaser would effectively be paying $230,000 + GST, or $264,500.  This would be a $30,000 mistake and this can often be the difference between a good , profitable trade and a bad one.

Therefore it is very important to ensure you know whether a vendor is GST registered or not when you are buying trading properties.  I recommend that you talk to your lawyer about inserting a clause in the sale and purchase agreement to ensure that the vendor is unable to change their GST status once the contract is signed.  Many traders and educators use a standard clause that your lawyer should be able to provide you.

Second hand goods claim – If you are buying from a vendor who is not GST registered (this will often be the case, as they are just personal house owners), then as a GST registered trader you will be able to make a second hand goods claim.  You can only do this on the payments basis for GST (i.e. claim the GST once you pay for it).  The property trader would then claim the GST back in the next GST period and get the GST back as a refund.  This is the purchase price divided by 23 * 3, so for example if a trader purchased a property for $230,000, they would get $30,000 GST back.  IRD will generally audit large GST refunds, so we often get clients to just claim the land/building purchase in that GST period, to keep the GST return very simple for the IRD audit. 

GST on rental income if trading properties

We have taken on a client in the past whose old accountant has returned GST on rental income for the last 6 years.  The client owes or has paid around $12,000 in GST per year, totaling $70,000 approximately over the 6 years.

If you are trading properties and registered for GST, you should not be returning GST on rental income!  For properties purchased before 1/04/11 it is best practice to use Lundy adjustments.  For the client above, using the Lundy adjustments reduced the GST adjustment down to approximately $2,000 per year or $12,000 for the 6 years.  Overall we hope to save at least $50,000 and are in the process of reassessing the old GST returns with IRD.  Again, if you are involved in property transactions, it is essential that you use a specialist property accountant who is fully aware of property tips and tricks.

If the property was purchased after 1/04/11, new rules have come in that generally require more GST to be paid back to IRD.  But the first adjustment required is not until 31 March of the year after.  For example, if you purchased a section, built a house in May 2013 and tried to sell it, then couldn’t, so rented it out, the first adjustment period would be for May 2013 to 31/03/15, with the GST adjustment due in the 31/03/15 period.

Profit on Trading Property

There are a lot of people looking at going full time into property trading to make a living and gain wealth.
My first comment is be very careful about quitting your day job.

- This job brings you day to day cash flow, which enables you and your family to live.

- Banks love a steady, solid income.   So without one, you might find lending difficult.

Secondly, do the figures really stack up?   In today’s market it is easy to buy, easy to renovate but the problem lies with selling.   This can result in additional holding costs and also with a lower than expected selling price.

Here is an example of a Property Trade that I have heard an investor talk about.


Purchased for $275,000
Renovations cost $5,000
Could sell for $300,000
From a quick glance, a lot of people think “that’s not too bad” and it’s $20,000 profit.   But, unfortunately, that is not the case.   Below are the likely expenses and I have included commission because in today’s market, many sellers are needing to use an agent to get a good price. 


Incl GST


Excl GST



Sale of Property




Less GST - Divide by 23 * 3











Commission on sale




Legal - $1,000 to buy and $1,000 to sell







Advertising - Agent or other



Insurance for 3 months



Rates - 3 Months












Travel - 86 cents per km * 300



Subtotal Expenses




Less GST




Subtotal Excluding GST




Less Loan Fee - NO GST



Less Interest 3 months @ 6%







So based on the expenses included, the Trade would make a loss of $693.   If commission is excluded the profit would be $8,307 before tax, or around $6,000 after tax at average tax rates. 

This example shows how quickly a perceived profit can disappear.   If the property was held for longer, then it is likely to make more of a loss.

There are a number of property investors getting tutored about property trading and my understanding is that there are around 90 such students targeting areas in South Auckland.

In my opinion this is too many traders concentrating in the one area. I would suggest being very careful about trying to trade in this area as it is likely there are too many other traders competing to sell their properties.

$50,000 rule

I always think that you need a $50,000 gap between the purchase and sale, with limited renovation expenses.   So for example, buy at $250,000, spend $5,000 on renovations and sell for $300,000.   Based on the same kind of expenses including commission, the profit before tax would be approximately $20,000. 

This level of profit gives the trader some room to move with either the selling price, or to hold the property for longer and to still make some kind of profit.

Property Trading is not easy and you need to ensure you have a market in which to sell your finished product.   With Trading you need to keep your properties moving, so the idea is to do them as quickly as possible and then move onto the next one.   Historically where I have seen Traders come undone is where they take too long or where they get too big too quick (i.e. have 2-3 or more on the go at once).

If you are thinking about trading properties, I suggest you organise a meeting with me to discuss the structures used and the implications of tainting.  Ring Mareese on 839 2801 to organise a meeting or email This email address is being protected from spambots. You need JavaScript enabled to view it..  Please note: there will be a charge for this meeting, depending on the work and information required.

Kind regards
Ross Barnett


Contact Us

For further enquiries or to arrange a free 10-minute no-obligation phone consultation about
your situation and what Coombe Smith can do for you, please email, phone or fill out our contact form. 

We'd love to hear from you!


YES! I want to learn more
about property investments.