BRIGHT LINE TAX UPDATES AND GUIDE
Bright line tax guide. The IRD has published the guide (IR1227). The bright line tax is changed multiple times over the years. The rules are quite complex depending on which date the property is purchased different rules apply. The bright-line property rule applies to residential property purchased or acquired on or after:
a. 1 October 2015 through to 28 March 2018 and sold within 2 years.
b. 29 March 2018 through to 26 March 2021 and sold within 5 years.
c. 27 March 2021 and sold within 5 years to the extent the property has a qualifying 'new build' on it when sold or 10 years for all other properties
The application of the bright line tax started in 01 October 2015 during that time the rule was just two years, this was mainly to discourage speculation. However, subsequently the on 29 March 2018 change to 5 years to discourage investors. Now, we are seeing lot people and transactions are being caught under this. There is widespread confusion for complex issues. And I have seen many questions coming out now such as.
d. What happens if this was investment property but then you moved in the house. Or vice versa. At the time of sale would you have to pay tax on it.
e. If the land has two houses home and income. What rules apply.
f. How do you define the start and end date for application of BLT.
g. I subdivided the house, do I have to pay tax on it.
h. I subdivided the house, but title never came, it came after I sold the house.
i. I inherited a property do I need to pay tax on it.
The IRD has tried to answer many questions in their guide but some parts still remains unanswered.
*The above article is a high-level explanation of the methods of calculation, and there may be other technicalities/rules that are applicable. The complexity of the calculations can also vary. Please reach out to us if you have specific questions regarding your situation.
Please note that the above does not constitute specific tax advice and only intends to be a general advice. If you require specific advice related to your situation, please reach out to our tax consultant using the ‘contact us’ option.
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