by Geoff Hurst
The 2-year bright-line test has been introduced to strengthen existing tax rules for determining when profits from property sales will be taxable. This law change will apply to sale & purchase agreements entered into after 1 October 2015. Under current rules a property sale can be taxable if your intention when buying the property was to sell, but this rule is often very difficult for IRD to impose as it is a subjective test and often hard to prove. The 2-year rule will now mean quick property sales will definitely be caught unless an exemption applies. The 2-year test applies only to residential property (so not business and farmland) and does not apply to your main home, inherited property, or the transfer of relationship property. The old property tax rules still also apply so this change does not mean you can avoid any possible tax on property sales by holding longer than the two year period.
The property conveyancing law changes are going to create some extra work for lawyers dealing in this area. These changes will apply to property sales settled after 1 October 2015 (so can apply to sale and purchase agreements dated before 1 October). Further tax information is going to be collected in sale and purchase agreements which will be passed to Land Information NZ ("LINZ"). IRD will be able to obtain that information to assist in its audit activity. You will be exempt from this new law if you are a NZ resident and you are buying and selling your family home. If you are not exempt you will have to provide your IRD number. A big impact of this change is that Trusts will not be exempt, so all Trusts in NZ are now going to need an IRD number when entering property transactions. If you are an "off-shore person" (there are specific rules that define this term) you will have to get a NZ IRD number as well as a NZ bank account, and your tax number from your own country. Please contact us at Accounted4 if you have further questions.