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Sale of subdivided section from a residential property

As we mentioned in one of our previous articles regarding Bright Line Test that the test is based on now 5 years’ time rather than 2 year and it excludes the main home but what if the main home is subdivided and then sold. Will bright line test apply to it or it will be excluded as that’s the main home?

The main home exclusion will apply when:

• more than 50% of the area of the land in the subdivided section has been used for dwelling that was the seller’s main home; and

• the seller has used the land in the subdivided section for more than 50% of the time since the seller acquired the undivided land.

Please note that the bright line period for the subdivided section begins when the transfer of undivided land to the seller was registered, not when that subdivided section was registered.


Let’s understand this with help of an example:

Ravi purchases a land with the intention of building his home and it takes almost 15 months to obtain all the plans and consents. Following this construction takes 12 more months, Ravi moves into the house after 3 years and as the construction cost was more than what he expected. Ravi decides to subdivide the land and sells it after a years’ time but during that period Ravi uses that subdivided portion as his backyard.

Is this subdivided portion excluded from bright-line test as the main home exclusion?

The answer is NO, the bright-line test will apply on the subdivided land sold by Ravi even though he has used the full subdivided section as his backyard which predominantly is used in connection with dwelling but the reason why bright-line test will apply is that he has owned the land for 4 years but only lived for 1 of the years i.e., 25% of the time of the home he owned although the exclusion specifically says that seller i.e., Ravi has to use land for more than 50% of the time since he has acquired the land.


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