Thanks guys. It certainly is a grey area. My accountant is trying to err on the side of caution i think recommending I pay tax. I beg to differ of course but with some of the gains I have made it is a significant slice on the profits if I sell now and pay tax. Fly under the radar seems to be the general consensus and fight my case if an auditor shows up. Interesting to know if anyone was aware of any court cases in NZ relating to this matter.
Shareinfo.co.nz have the following article on it which echoes some of the thoughts above.
Munst.

"New Zealand does not have a capital gains tax regime, but to say investors are not liable for income tax on capital gains is a simplification. Capital gains from the sale of shares (or any other property, such as real estate) are sometimes taxed, but when is far from clear.

There have been various test cases in recent years regarding this issue, but regrettably there remains a "hit or miss" element to the subject. Links to the more relevant cases are shown. Under current law (section 65 of the Income Tax Act) a capital gain is liable for income tax (and a loss deductible against other taxable income) if one or more of three situations apply where:


  • The investor is in the business of dealing in shares, or
  • The shares were acquired with the dominant purpose of resale at a profit, or
  • The investor enters into a scheme or undertaking to make a profit from shares.



To judge whether a person is undertaking a business, one needs to look at the number of transactions entered into and the holding period before the shares were sold. There would need to be evidence that the pattern of buying and selling was continuous, perhaps over a number of years. The business need not be profitable, but there would need to be evidence that the taxpayer treated their share buying and selling as a business. Dealers usually:


  • Invest a substantial amount of capital into the market and will sometimes borrow to fund their purchases

  • Monitor their portfolios regularly — perhaps weekly or even daily; they may have a trading system of some kind.

  • They will usually spend a good deal of time researching their investments

  • They may be trading low value — high risk shares to gain leverage.



This is in contrast to the long-term investor who generally buys a relatively small number of high quality, dividend paying shares, which they hold for years or until there is a genuine reason for selling, such as the company ceasing dividend payments, a down-grading of the future profitability, broker’s advice, adverse publicity, directors reducing their personal shareholdings, the funds being needed for another purpose, or any one of any number of other reasons.

The second net the taxman casts is to catch those who may not be dealers in the normal sense, but where an investor buys shares with the dominant purpose of reselling them at a profit (cf holding those shares as a long-term investment). The vagueness in attempting to determine one’s dominant purpose at the time the investment was made, gives the Inland Revenue Department enormous power to deem the taxpayer’s share buying activity taxable. (Remember, in tax law, the onus is on the taxpayer to prove their innocence, not on the Department to prove guilt.)

In determining "purpose" the Department will look at the circumstances surrounding the transaction. The investor who stags a number of new issues may find it hard to prove their intention was anything but making a quick profit.

The confusing aspect of the law as it stands is that even though one may not be a dealer of shares, one may still be taxed on the profits if they were acquired with the dominant purpose of resale. Conversely, it is unclear whether a dealer would be taxed on share investments done outside of their share dealing business.

Given the lack of clear and definitive guidelines we suggest investors that are traders and long-term investors operate two accounts — one for their non-taxable long-term investments and the other a taxable trading account."