Question 4

a. Cynthia purchased a townhouse on 2 August 2018 for $520,000. She lived in the townhouse from 27 August 2018 until 28 February 2020 and then rented it out until she sold it on 5 May 2023 for $715,000. Cynthia did not buy the house with the intention of selling it, and she did not own any other land during this period.

Task: Explain whether the proceeds that Cynthia receives from selling the townhouse on 5 May 2023 will be subject to income tax and if so, the amount that is assessable. Support your answer with relevant statutory references.

b. Wiremu owns 40% of the shares in Pikowai Properties Limited, a land development company. Wiremu purchased a plot of land on 20 October 2017 for $325,000 with the intention of building a house on it for himself and his whanau. However, Wiremu was so busy running the company that he never got around to building the house. Pikowai Properties Limited got into financial difficulties in 2022, and on 12 April 2023 Wiremu sold the land for $485,000 and lent the money to the company. The only other land that Wiremu and his wife, Aroha, owned during this period was a rental property.

Task: Explain whether the proceeds that Wiremu receives from selling the land on 12 April 2023 will be subject to income tax. Support your answer with relevant statutory references.