NEWS

The bright-line test was introduced on 1 October 2015 and only applies to residential land and if the other land taxing provisions don’t apply. There are exclusions for farmland, business premises and the main home.

Bright-line periods are:

· 2 years if acquired on or after 1 October 2015

· 5 years if acquired on or after 29 March 2018

· 10 years if acquired on or after 27 March 2021

· “New” 2 years for disposal on or after 1 July 2024

 

Residential land is land that has a dwelling on it, land for which the owner has an arrangement that relates to erecting a dwelling, or bare land that may be used for erecting a dwelling under rules in the relevant operative district plan. Excluded is land that is farmland or is used predominantly as business premises. A dwelling means any place configured as a residence or abode, whether or not it is used as such, this includes property used for Airbnb.

The main home means one dwelling that is mainly used as a residence by a person, it is one they have the greatest connection to. It is not possible to have more than one main home, and you can only claim the main home exclusion twice in the preceding 2 years. The main home exclusion cannot be applied to your holiday home. The IRD will check that the main home is your main home, by requesting power bills, looking at electoral role records and the IRD has even been known to speak to neighbours.’ You must occupy your property as your main home for more than 50% of the time.

The new “2 Year Test” will apply where the bright-line end date is within 2 years of the bright-line start date. Generally, the start date will be the title transfer date, the bright-line end date will be the date a contract to sell is entered into (even if it is a conditional agreement).

For land with no title – off the plan acquisitions, the date is the date of the sale agreement was entered into not the title transfer date.

If your property is used for over 50% business, say retail downstairs and flat upstairs and the retail space is larger than the flat upstairs, you are excluded from these rules.

There is no exclusion available if you have a regular pattern of acquiring and disposing of residential land.

Rollover relief is intended to allow “internal” transfers of ownership of residential land, these rules apply to inherited land, relationship property settlements, rollover trust, transfer to settlors, transfers to and from LTC’s and partnership and transfers within a company consolidated group. With the new rules, the transferee does not take on the transferor’s acquisition date in some cases.

The tax rules around disposal of property are complex so please seek advice from your accountant BEFORE entering into a property agreement or restructuring.

 

Disclaimer

This information is intended to provide general advice only. We recommend you discuss your specific situation with your Accountant.