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Buying or Selling Property

We have been inundated with legislation to try and dampen the property market inflation and assist entry-level buyers into the market.

Unfortunately, this has resulted in many scenarios where buyers and sellers of property are affected by legislation inadvertently resulting in unnecessary costs and tax issues.

Who is affected?

It is imperative that anyone buying or selling a property is aware of the issues and definitions affecting the bright-line rules.

What is Residential Land

  • Land with a dwelling on it.
  • Bare land which has an arrangement to build a dwelling on it.
  • Bare land which may have a dwelling built on it under the operative district plan.

Excludes

  • Farmland
  • Land used predominantly for business premises.

Bright-line Test

  • This has been increased to 10 years from the 27th of March 2021 (it is still 5 years for a new build but the legislation on what is a new build has not yet been finalized).
  • If you bought a property after the 29th of March 2018, you may still be in the 5-year bright-line period.
  • The main home exemption applies here but there have been some changes around apportioning (if purchased after 27th March 2021) between the time the property is used for a main home and time either empty or rented. This is an issue for anyone using their home for Airbnb or similar.

(If your main home was not used as your main home for any continuous period or periods of more than 12 months during the bright-line period, the main home exclusion will not apply to the period(s). You will pay tax on the portion of profit that relates to the period(s). This is the ‘change-of-use’ rule.)

What property is affected by the Bright-line Test?

  • A Bare Section – if the section does not have a home on it, then you cannot use the main home exemption.
  • Certain larger properties – If for example there is land leased out, then the main home exclusion may not apply.
  • Second homes – Holiday homes are not able to use the main home exemption
  • A property owned jointly by parents and children – the portion that is owned by the parent/s (could be a trust) is not considered exempt from the rules. If the children later purchase the balance of the house, this may be caught.
  • Restructuring – restructuring of property ownership can reset the bright-line period and result in properties falling into the bright-line test.
  • Ownership entities – A property owned by a company cannot use the main home exemption. It is only available to personal or trust ownership.

As you can see the bright-line test, originally quite simple, has now become both complex and potentially onerous.  We would recommend that you discuss any property transactions with us prior to signing any agreement so that you are aware of the implications of doing so.

 

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