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Question
Tony entered into a sale and purchase agreement for a residential property on 15 November 2021. He became the registered owner of the property on 15 December 2021. The residential property is not new build land.
Tony purchased this property for long-term investment purposes and rented the
property out since settlement date.
In May 2024, Tony decided to sell the property due to the rising interest rates
over the years. On 15 June 2024, Tony entered into an unconditional
sale and purchase agreement with a purchaser, with the settlement date set as
15 July 2024.
Will the sale of the residential property be subject to the 10-year bright-line
test or the new 2-year bright-line test?
Answer
The 10-year bright-line test applies to residential land acquired on or after 27 March 2021 and disposed of within 10 years of the bright-line acquisition date (former s CB 6A(1)).
The new 2-year bright-line test applies for disposals of land where the
bright-line end date is on or after 1 July 2024. A tax liability will arise
under the 2-year bright-line test where the person’s bright-line end date is
within 2 years of their bright-line start date (s CB 6A(1)).
Exceptions such as the main home exclusion may apply.
For the purposes of the 2-year bright-line test, the bright-line start date for
a standard purchase of land is the date that the title to the land is
registered for the purchaser of the property. The bright-line end date for a
standard land transaction is generally the date that a person enters into an
agreement for the sale of the property.
For Tony, the bright-line start date is 15 December 2021 which is the date the
land transfer was registered with Land Information New Zealand. Tony’s bright-line
end date is 15 June 2024, being the date that he entered into an agreement to
dispose of the property.
In this case, despite the settlement date of 15 July 2024, the 10-year
bright-line test applies to Tony’s disposal as the bright-line end date of 15
June 2024 is before 1 July 2024. The disposal of the land will be
subject to tax under the 10-year bright-line test as Tony has disposed of the
land within 10 years of the bright-line acquisition date, being
15 December 2021.
For completeness, Tony hasn’t used this property as his main home and therefore
the main home exclusion doesn’t apply.
References
Income Tax Act 2007, s CB 6A.
