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Draft legislation provides detail on bright-line test for residential land sales

Tax Alert - September 2015

On 24 August 2015, the Taxation (Bright-line Test for Residential Land) Bill (“the Bill”) was introduced into Parliament.  This follows consideration of submissions made on the Officials’ issues paper “Bright-line test for sales of residential property” released on 29 June 2015 subsequent to the Budget 2015 announcements. 

The main feature of this Bill is the proposed new objective bright-line test for land sales which will impose income tax on any gains from residential property acquired and disposed of within two years.  An exception is provided where the disposal is of a person’s “main home” as defined.  The bill essentially follows the proposals in the issues paper with some refinement based on submissions. Key features of the new rules are:

  • The 2-year period for the bright-line test runs from the date of acquisition of the land to the date of disposal.  The date of acquisition is the latest date on which the person acquires an estate or interest in land (generally the date the instrument to transfer the land to the person is registered for the purchase of the property);
  • The draft legislation makes it clear that the rules will also apply to disposals of residential land outside New Zealand.  For example, if a New Zealand resident purchases an Australian rental property after 1 October 2015 and disposes of it within the two years, this would appear to be subject to tax in New Zealand under the bright line test;
  • Deductions in relation to losses from disposals can only be used against other income arising from prescribed income tax provisions in relation to property; and
  • All existing property will be grandparented.  That is, property acquired before 1 October 2015 will not be subject to the proposed rules.

Please contact your usual Deloitte advisor for more information.

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