Welcome to our May Newsletter
To combat rapidly rising residential house prices both the previous National and the new Labour led Coalition Government have passed legislation to introduce new rules for residential land sales with the aim of dampening demand in a hotly contested housing market – particularly in Auckland.
In 2015 the National Government announced its objective to introduce rules to supplement the “intention test”. Under this test gains from the sale of land were taxable when the land was bought with an intention or purpose of resale, and the taxpayer is required to return any gain as income. Because of the subjective nature of the intention test however, it was difficult to enforce. To deal with this problem, the National government’s new legislation introduced a new easy-to-enforce ‘bright-line test’.
The Taxation (Bright-line Test for Residential Land) Bill was introduced into Parliament on 24 August 2015. Upon receiving its royal assent on 16 November 2015, the law introduced the new ‘bright-line’ test requiring income tax to be paid on any gains from residential property disposed of within two years of acquisition, subject to some exceptions.
The new coalition government has now extended this and so from 29 March 2018 the ‘Bright-Line Test’ to determine if you have tax to pay on the sale of residential property changed.
If you purchase residential property on or after 29 March 2018 and elect to sell the same property within 5 years, you’ll need to consider if it is taxable under the ‘bright-line test’. If a property was purchased on or after 1 October 2015 through to 28 March 2018 the bright-line test will only apply if it was sold within 2 years from the purchase date during that time period.
However, there are exceptions to both rules. If your property was your main home, formed part of an inheritance or transferred to you as part of a deceased estate then the bright line test does not apply and the transaction is not taxable.
In addition to the changes made loss ring-fencing has been introduced on residential properties held by speculators and investors. This means they can no longer offset tax losses from their residential properties against their other income (for example, wages or business income), to reduce their income tax liability. The loss ring-fencing rules will apply from the start of the 2019–20 income year. This is a significant change.
If you have a query as to whether your planned residential sale might be taxable or your rental property situation or on any other legal matter please do not hesitate to contact us to organise a time or to just discuss your matter over the phone.
DAVENPORTS WEST LAWYERS LIMITED
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