A new tax test on the sale of residential properties is coming
– the bright line test.
If you buy and then sell a residential property within two years
new taxation rules may apply to the gain (or loss) that you make.
Existing tax law provides for tax on sales where the property was
purchased with the intention of resale ("Intention
rule"). The new "bright line" test tightens the
rules for some sales within two years.
The new rules will come into force on 1st October
2015. The legislation making the changes is still being
finalised but the following is expected:
The test will apply to residential land; so sales of business
or farm land remain subject only to the intention rule.
Income tax will be payable on the capital gain made when a
residential property is on sold within two years, despite there not
being an intention to resell at the time of purchase. Any loss is
only able to be offset again other land sale income.
Main home – gains made on the sale of your primary
residence are exempt. There are additional rules if the main home
is owned by a Trust and the Trust will need an IRD number.
Inherited property – property transferred following a
death is expected to be exempt
Relationship property – property transferred following a
relationship break down to one of the parties is expected to be
exempt. However the on sale by that person may be caught by the two
Deductions – the costs of on selling the property (for
example real estate and legal fees) are able to offset against
Anti-avoidance rules will catch sales through companies or
trusts by way of share sales or distributions to beneficiaries
An IRD number will be needed for every sale of land (whether or
not the sale is within two years of purchase.) For people who are
tax resident outside New Zealand the equivalent number from their
country of residence will be needed. The final rules will need to
be considered in the context of a specific sale and along with
specialised tax advice.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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