The Inland Revenue has recently introduced a new test for determining when gains from the sale of a property are taxable. They have released a Special Report to highlight the changes.

The key features of the report are:

  • Gains from the disposal of residential land acquired and disposed of within two years will be taxable (subject to some exceptions)
  • The two year bright-line period generally starts at the point a person has title for the property transferred to them, and ends at the time the person enters into a contract to sell the property.
  • The bright-line test applies only to residential land. (Residential land includes land that has a dwelling on it, land where the owner has an arrangement to build a dwelling on it, and bare land that can have a dwelling erected on it under the relevant district plan.) Residential land does not include business premises or farmland.
  • The Bright-line test does not apply to a person’s main home as a person can only have one main home.
  • The main home exception is generally available to properties held in a trust.
  • The Bright-line test does not apply to propety acquired through inheritance.
  • Taxpayers will be allowed deductions for property subject to the bright-line test according to ordinary tax rules.
  • Losses arising from the Bright-line test will be “ring-fenced” so that they may only be used to offset taxable gains from other land sales.
  • There are specific anti-avoidance rules, to counter companies and trusts being used to circumvent the Bright-line test.

To read the full report click here.

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