Prior to the Amendments
Rollover relief ensures that certain transfers of residential land are not taxed under the Bright Line Test at the time of the transfer. When the recipient disposes of the residential land, the cost and acquisition date determines whether the disposal is taxed under the bright line test and the amount which will be subject to tax.
Bright Line Test
The extent of rollover relief available under the bright-line test for these new categories generally depends on the amount of consideration paid for the transfer.
- If the transfer occurs at or below the original owner’s acquisition price and the transfer occurs within the relevant bright-line period, no tax consequences arise. The recipient will take on the original owner’s bright line start date and cost base.
- If the transfer occurs at above the original owner’s acquisition price and occurred within the relevant bright-line period, the gain will be taxed. The recipient will take on the original owner’s bright line start date but with an updated cost base of the amount of the transfer.
There are a number of technical issues with the current rules, and clarification is required so they operate as intended.
The amendments aim to clarify the rollover relief rules. They include:
- Propose amendments to sections CB6A of the ITA to ensure that rollover relief applies to a transfer of residential land or DRP out of a family trust either back to a principal settlor or the group of settlors that originally transferred the land to the trust.
- Allowing rollover relief to apply to transfer of residential land or DRP out of a family trust to the principal settlor even if the original settlor did not originally transfer the residential property in question to the trust.
- Proposed new sections CB 6AB(1)(b) and CB 6AC(1)(b) would provide that that rollover relief would be available when residential land or DRP held in a qualifying family trust is resettled into another family trust.
- Amendments to S CB 6AB and CB 6AC will clarify the wording and intention of the provisions providing rollover relief for transfers involving multiple legal structures or different between legal capacities
- Amendments to the definition of “close family beneficiary” will now include a company where more than 50% voting interest is owned by a beneficiary who is a principal settlor of the trust
- Amendments to S CB 6AC(5) would ensure rollover relief would be available for certain transfers to or from qualifying trusts that are or are eligible to be Māori authorities.
- Proposed new section CB 6A(1AB)(b) would clarify that when the rollover relief provisions applies to the transfer of residential land, the recipient of the land should be subject to the same bright line test as the transferor was
The proposed amendments will take effect on the day after the bill receives royal assent.
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