Jay Changlani –
As a part of Budget 2015, the Government announced that it would introduce a ‘Bright-Line’ test (Indian Newslink, June 1 & 15 issues) for sale of residential property.
The Test will require income tax to be paid on gains from residential property bought and sold within two years, with the exception of the main family home.
The purpose of the Bright-Line Test is to supplement the ‘Intention Test’ in the current land sale rules. This Test makes gains from the sale of real property purchased with the intention of resale taxable.
Enforcing problem
The Intention Test can be difficult to enforce due to its subjectivity. The Bright-Line Test aims to deal with the problem by supplementing the Intention Test with an unambiguous objective test.
The Bright-Line Test will make a sale of residential property taxable when the seller did not acquire the property with an intention of resale and when a person needs to sell property due to circumstances outside of their control. This is unavoidable for the Bright-Line Test to achieve its goal of being objective and unambiguous.
For the Bright-Line Test to be effective, the number of exceptions should be as few as possible, and tightly defined.
However, the Inland Revenue Department considers exceptions are justified for types of acquisitions when the property is the main home of the seller or, in certain circumstances, when the seller did not intend to acquire the property.
Better tax planning is required for acquisition of the property, especially if it is not your personal home.
Jay Changlani is a Tax specialist and a Director of ‘Accounts Icon Chartered Accountants’ based in Wellington. Phone: 0210-763762. Email: jay@accountsicon.co.nz
