As indicated by the new government in its pre-election campaign, the bright-line test for residential property sales has been extended from the current two year period to five years effective from 29 March 2018.
Clearly, the objective of the extension is an attempt to crack down on property speculators and ‘flippers’ making profits by way of capital gains on residential property sales and not paying tax on those gains. It is hoped by the government that this measure will assist in partially regulating the housing market and will provide more of a level playing field for first home buyers.
The change to the bright-line test took place by way of a supplementary order paper to the proposed new tax legislation making its way through the House at the moment. It is effective as at 29 March 2018 meaning that if you enter/ed into an agreement for purchase of residential property on or after 29 March 2018 and sell it within five years of that date, capital gains tax may apply. The change to the law is not retrospective in its application meaning that if a residential property was purchased on or after 1 October 2015 through to 28 March 2018, the capture period for potential taxability remains two years from the date of purchase.
The operative parts of the bright-line test will remain the same and the current exemptions will still exist, ie – the law does not apply to the sale of a person’s ‘main home’ (unless there is a pattern of disposing of the main home or the exemption has been claimed twice or more in a two year period); the transfer has taken place by way of inheritance or has taken place to an executor of an estate.
Properties acquired before the effective date of the extended bright-line test will not be subject to the increased five year period of potential taxation liability.
The bright-line tax legislation is complex and we urge our clients to take expert tax advice before disposing of or acquiring potentially qualifying residential properties.
Disclaimer: the information given above is of a general nature only and is not legal, professional, taxation or other professional advice. It does not account for anyone’s particular circumstances and may not be relied upon in any way.