New property tax rules
Bright-line test and residential land
New tax rules now apply to residential property sales made from 1 October. A new 'bright-line test' will apply where a person who has purchased a residential property on or after 1 October 2015 then sells it within two years. The sale will be taxed unless the property is the seller's main home, inherited from a deceased estate or sold as part of a relationship property settlement. The bright-line test does not apply to business premises or farmland.
Selling the main home
The seller's main home is exempt from the bright-line test. Where the seller has more than one home, their 'main home' is the property with which they have the greatest connection. Just to prove that the tax system has a sense of humour, a person will not be able to use the main home exception if they have already used it twice in the previous two years.
Claiming tax deductions
There are provisions for allowable deductions when a property subject to the bright-line test is sold. However, where losses arise as a result of the bright-line test they have been ring-fenced so they may only be offset against taxable gains arising on other land sales. It is not possible to claim a loss arising from a transfer of property to an associated person.
Companies and trusts
Inland Revenue will keep a close eye out for where land-rich companies and trusts try to get round the bright-line test. They may view a transaction as subject to the bright-line test where:
- 50% or more of the shares within a 12-month period are sold
- there is a change in the trust deed
- a decision-maker under the trust deed changes This applies where at least 50% of the value of the company or trust is attributable to residential land either directly or indirectly.