New Property Tax Rules & 2 Year Bright-line Test

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New Property Tax Rules & New 2 Year Bright-line Test

Effective 1st October 2015, the following rules are coming into play in New Zealand. Get in touch with us if you would like to know more.

Transferors and transferees must, for the transfer of land:
• Provide IRD number (including non-resident persons), and
• Their “Tax Identification Number (TIN) if resident in overseas jurisdiction, and
• Must provide this at the time of transfer of land – This “Tax Statement” goes to LINZ as part of transfer documentation (they send to IRD)

Exemption from the new rules applies to persons who are:
• Not an “offshore person” and
• Transferors selling their main home, or
• Transferees buying with intention for their main home

The Main Home Exemption
• Exemption only applies to residential land
• Not available where residence is on a commercial farm (economic business test)
• Not available if used mainly for investment purposes nor if mainly as business premises
• Exemption can only be applied once – won’t apply to other homes (eg. holiday home)

Exemption is not available where:
• Person is an “offshore person”
• The property is to be, or was, owned by a trust (and estates)
• Exemption used twice or more in last 2 years before current transaction

Trusts
• The main home exemption can’t be used
• All trusts will be required to provide IRD number
• And foreign TIN and NZ bank account if offshore person

Regular Sale of Main Home
• If home sold 3rd time within last 2 years IRD number required
• Government aim is to catch person’s with regular pattern of selling family home
• Gives IRD information to target these persons and determine whether taxable

New 2 Year Bright-line test

A disposal of residential property within 2 years of acquisition will be taxable unless an exception applies.
Date of Acquisition
• Current rules: the date of acquisition is generally the date the S & P was entered in to
• IRD state this date could be difficult to find and may not have access to S & P
• Therefore bright-line acquisition date = date title registered which will show on land online

Disposal Date
• Date the contract is entered into
• For gifts and other similar distributions where no sale contract – Disposal date will be normal rules = depends on documentation
• Subdivided land: lots acquisition date same as original undivided land
• Different dates for acquired and disposed make the 2 year period a tighter squeeze

Transitional Rule
• New rules only apply to a S&P entered into after 1/10/15
• Example – Shania Twang enters in a S& P on 2/6/15 – 1/11/15 title registered for purchase – 1/12/15 Contract to Sell
• Not caught by the new rules due transitional provision

Definition of Land
• Any estate or interest in land
• Option to acquire land, estate or interest in land
• Therefore includes freehold and leasehold

Main Home Exception Proposed Rules
• Bright-line test will not apply to main home
• Will only apply to one property at a time – different from current rules
• Proposed rule: the land has a dwelling on it; the dwelling is occupied mainly as a residence by the owner; and the dwelling is the main home of the owner.
• Can be owned by a trust so long as beneficiaries occupy
• Must be occupied mainly as a residence
• Based on actual use rather than intention
• Where several residences, main home = property with most connection


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