When it comes to tax, whether something is considered “minor” can have substantial consequences.

The IRD have recently published Interpretation Statement IS 20/08 that clarifies what is considered “minor” work for the purposes of section CB 12. Under this section, income from the sale of land is taxable if:

  • the person carries on an undertaking or scheme (not necessarily in the nature of a business);
  • the undertaking or scheme involves the development of the land or the division of the land into lots;
  • the development or division work is carried on by the person (or another person for them) and that work is on or relates to that land;
  • the work is not minor; and
  • the undertaking or scheme was begun within 10 years of the date on which the person acquired the land.

Although other factors besides cost are considered, in the past the courts have considered these costs both in absolute terms and relative to the value of the land.

The highlight of IS 20/08 is the establishment of de minimis thresholds below which work is likely to be (not definitely) considered minor by the IRD. Work costing less than $50,000 will be considered low in absolute terms, as will costs in relative terms of less than 5% of the value of the land at the commencement of work.

It is worth noting that being below these thresholds does not guarantee CB 12 will not apply, since other factors are also considered, such as the extent of physical work done and the significance of changes to the land. However, the de minimis thresholds do at least provide a starting point for what the IRD considers minor work outside the remit of CB 12.