29 June 2015
Consultation begins on property bright-line test
Revenue Minister Todd McClay today welcomed the release of detailed design proposals for the new “bright-line” test, which will require income tax to be paid on gains from the sale of residential property bought and sold within two years.
“The Government clearly signalled in Budget 2015 that it would consult with the public on the final shape of the bright-line test before it becomes law later this year,” says Mr McClay.
“This consultation paper is an important step in the Government’s plans to bolster the tax rules on property transactions and help Inland Revenue to enforce them.”
Mr McClay says the proposed bright-line test will help to clarify whether or not gains on the sale of a property are taxable.
“The new bright-line test removes any doubt about a seller’s ‘intention’ and makes it clear that all property buyers, including overseas buyers, who buy and sell a residential property within two years will be taxed on their gains,” he says.
Once enacted, the bright-line test will apply to residential properties for which an agreement to purchase was entered into on or after 1 October 2015. The only exemptions are a person’s main home (including a main home held in trust), property that is transferred under a relationship property settlement, and inherited property.
The consultation paper, Bright-line test for sales of residential property, released by Inland Revenue and Treasury officials, seeks public feedback on the final design details of the bright-line test.
The paper proposes new definitions of “residential land” and “main home”, clearly identifies the dates of acquisition and disposal of a residential property so a seller and Inland Revenue know if the sale falls within the bright-line test, and clearly spells out property that will be exempt from the test.
Once Ministers have considered public feedback on the proposed changes, the new rules will be included in a tax bill to be introduced in September this year.
“The bright-line test, together with the measures introduced to Parliament last week in the Taxation (Land Information and Offshore Persons Information) Bill, will help Inland Revenue to more accurately identify investors in residential property, and ensure that they pay their fair share of tax, whether they are in New Zealand or overseas,” Mr McClay says.
The consultation paper, Bright-line test for sales of residential property, is available at www.taxpolicy.ird.govt.nz. Closing date for submissions is 24 July 2015.
Media contact: Lesley Hamilton 027 490 1345
Attached: Detailed design of the bright-line test as presented to Cabinet