5 Year Bright Line Test

Article by Withers Tsang & Co Limited Chartered Accountants

We wanted to alert you to the fact that the government has now introduced legislation to parliament that will make good their policy of extending the existing 2 year bright line test to 5 years.

The bright line test will impose income tax on any gain made from disposal of a residential property that is acquired and sold within five years, regardless of the reason it was purchased and regardless of whether the owner is a property developer or dealer.

There are exemptions for a taxpayers primary place of residence but second homes, and residential rental properties are all included. Even vacant sections are included as residential land is defined as including any land capable of taking a residential building. Intention to live in the house won’t be enough to be exempt either, you have to actually have lived there.

What we particularly want you to know now though is that the change from 2 years to 5 years will only take effect from the date where the bill passes into law, this is likely to be late March.

Whether a property acquisition will be on the 2 year side of the law or the 5 year side of the law will be determined by when you “first acquired an interest in the land”. This first interest is gained when you have a sale and purchase agreement signed so any agreement entered into to acquire residential land before the new legislation receives its Royal ascent will be under the existing 2 year bright line test.

For most people 2 years was manageable but a lot can happen in a families circumstances over a 5 year period so we foresee many more situations where residential properties will be caught by the bright line test once that test spans five years of ownership. You will definitely need to keep the acquisition date under a fridge magnet to beat this one.

So if you have been toying with the idea of another investment property or humming and haring about the right time to help your kids into a property or wondering whether it’s worth putting an offer in on that bach now that summer is ending, or land banking that section next door, it just might be worth considering getting it on paper now before this law passes.

There is still a window of opportunity to beat the change but time is of the essence !

If you have questions on the bright line test as it stands or as it will be, call your Withers Tsang advisor.

Oh and while we are at it, we haven’t heard anything yet on the introduction of property loss ring fencing but that was a stated pre-election labour policy so we will keep you posted on the detail when that next bundle of joy appears, pun intended!

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5 Year Bright Line Test