A bright-line rule – still hazy…

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Bright line

Discussion on the proposed capital gains tax feels like an age ago now.

However, those fortunate enough to own residential property should be well aware that tax may still apply on the sale of a residential property after less than five years ownership.  Or… is it less than two years?

The bright-line rule can (somewhat ironically) create confusion as to where the line actually sits.

So let’s break it down –

  • If you bought your residential property any time from 1 October 2015 to 28 March 2018, the two year test applies.
  • If you bought your residential property on or after 29 March 2018, the five year test applies.
  • If you bought before 1 October 2015, bright-line does not apply.

Getting the start and end measurement dates correct is critical.  So how do you pinpoint these? Under the law, the two points are measured quite differently.

  • The start date is taken as the date that the legal title is transferred to you. This is the settlement date (most of the time).
  • The end date for the bright-line test period is the date you enter into an agreement to sell the property (most of the time).

If you buy “off-the-plans” then the start date may be different.

The bright-line test applies to all residential property (including empty sections) except for your main home, inherited property and property acquired under relationship property agreements (most of the time).  For the main home exclusion, you need to be using more than 50% of the property as your main home.  You can only rely on this a maximum of two times over any two year period and special rules apply if your main home is owned by a trust.

A few more tips:

  • Watch out especially for restructuring and transfers to a related party. You might decide to transfer a property from your own name into a family trust.
  • Even if bright-line tax does not apply, other tax laws may apply in any event. For example, if you buy with an intention of resale.

The comments in this article are intended as a general guide only and you should take advice on your own particular circumstances.

Please talk to Gaze Burt or your accountant before you agree to sell your property if there is any chance the bright-line test may apply.  Our team is very happy to assist with all property matters.

Photo by Alex D’Alessio on Unsplash

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Kimberly Knox
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