Buying property

What happens when you sell your rental or investment property?

Before determining the tax treatment you will need to decide if you are a property investor or a speculator or dealer in property.

You may need to pay tax on the sale of your property

It is common for people who buy property to think of themselves as a property investor. However this is not always the case.

Depending on your intentions or pattern of sales, even though you are involved in rental property you may be considered a property speculator or a dealer rather than an investor for tax purposes.

They are all distinct under tax law and each has very different tax considerations.

If you change your property investment strategy

As an investor you may find the returns from buying and selling rental properties are a lot higher than the actual rental income those properties can provide. In this case you may switch from being an investor to a dealer.

If you start dealing or speculating in rental properties, any profits on your sales from the time you become a dealer will be taxable.

This probably won’t affect the sale of any rental properties you owned prior to becoming a dealer. This is assuming you bought them to provide rental income, not for resale.

Selling your entire portfolio of rental or investment properties

As an investor you may decide to sell your entire portfolio of rental properties, this will not automatically mean you are considered a dealer or speculator. This will depend on your intentions when you purchased the properties, and if you have had a regular pattern of purchases and sales.

Selling a property after a short duration of ownership

As an investor there may be times when investments go wrong and for some reason you sell a rental or investment property after a short duration of ownership. There could be financial pressure or an inability to rent the property.

This will not automatically mean you are considered a dealer or speculator. This will depend on your intentions when you purchased the properties, and if you have had a regular pattern of purchases and sales.

Each case is considered on its individual circumstances. However if further sales of property held for a short duration occur, it is likely that your explanations for selling would come under closer scrutiny by us.

Date published: 30 Jul 2010