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BIG NEWS - Expected date for change to 5 year Brightline Test

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  • BIG NEWS - Expected date for change to 5 year Brightline Test

    BIG NEWS - Expected date for change to 5 year Brightline Test

    It's typical, I'm relaxing on holiday and enjoying the snow, when Labour releases some big information (At least I was last week, and now back working hard).












    Legislation is currently making its way through Parliament that will change the Brightline Test to 5 years. This legislation is expected to gain royal assent in March, meaning any rental property purchased after this date will be taxable if sold within 5 years.

    So how does this affect you?

    1. Current Rentals

    Not affected and will still be subject to 2 year Brightline Test.
    2. Restructures - BIG ISSUE

    If you are looking at restructuring (for example, selling a rental from personal name to an LTC), this change to legislation could have a big effect. The first part, selling to an LTC will be under the old rules. So, as long as held for more than 2 years, should be OK. But here are two scenarios to highlight the possible future implications:
    a) Restructure in February before changes. The new entity has purchased the rental in February, so will still be subject to 2 year rule. If the rental is sold say three years later, then as long as not caught by another taxing provision, the capital gain would be tax free.
    b) Restructure in April after changes. The property would be subject to 5 year rule. So, if the rental is sold say three years later, then any gains would be taxable!

    We had hoped that restructures would be excluded from the Brightline rules, but, to date, I haven't seen any changes around this. It is very important to get expert advice around restructures as there can be other catches and implications.




    3. Buying a Property

    The extended Brightline test does not apply to agreements to purchase before the date of enactment of the Bill. So, ideally, if you are trying to buy a rental property, we want the agreement dated as soon as possible so that it is before the new rules. Because we don't know the exact date yet, the sooner the better at this stage. We are expecting the new rules to take effect some time in March 2018.

    4. Holiday Home

    Main home exemption is only for one property. So, if you buy a holiday home after the new rules take effect, then if this property is sold within five years, the gains will be taxable under these new rules!
    5. Share Changes

    Share changes can also be caught by the Brightline Test. It is therefore important to consider any share change before the new rules come into effect.

    Overall, I actually like the change to 5 years. It helps to separate property investors from property speculators. For a true property investor, who is buying properties for long term hold, the new rules should have little or no effect.

    Ross
    Book a free chat here
    Ross Barnett - Property Accountant

  • #2
    Overall, I actually like the change to 5 years. It helps to separate property investors from property speculators. For a true property investor, who is buying properties for long term hold, the new rules should have little or no effect.
    This is what makes the whole thing a farce. Traders already pay tax, investors don't. They should be trying ot target the primary demographic who break the law now instead of penalising the masses.

    Comment


    • #3
      Originally posted by fuzzlevalve View Post
      masses.
      ??? The masses don't sell properties within 5 years of purchase. Try "the few".

      Comment


      • #4
        The law applies to the masses, that's my point. Average length of ownership in NZ has been under 5 years since around 2006. So potentially thousands are unintentionally caught. Already people have been pinged via transfer of assets between trusts etc. The law is a nonsense.

        Comment


        • #5
          Is a PPOR still exempt?

          To allow for people who have the jobs transferred.
          Want a great looking concrete swimming pool in Hawke's Bay? Designer Pools will do the job for you!

          Comment


          • #6
            Also, what are the implications for executors of an estate that includes the family home / PPOR?
            Want a great looking concrete swimming pool in Hawke's Bay? Designer Pools will do the job for you!

            Comment


            • #7
              Marriage splits are another situation caught by it.

              Comment


              • #8
                The 2 year rules continue, so

                - still personal house exemption. Needs to be predominately private house. An example might be build for 9 months, live in for 3. Therefore not predominately private house, so no exemption.

                As far as I have seen this exemption hasn't changed, so was sell 2 personal homes in 2 years is OK, so now presume it is 2 personal homes in 5 years.

                - some relationship property exemptions

                Ross
                Book a free chat here
                Ross Barnett - Property Accountant

                Comment


                • #9
                  I suppose they'll just keep extending it too so 5 years will become 7 then 10. Our only glimmer of light might be if National get in next time and wind it back.

                  cheers,

                  Donna
                  SEARCH PropertyTalk, About PropertyTalk

                  BusinessBlogs - the best business articles are found here

                  Comment


                  • #10
                    Originally posted by donna View Post

                    Our only glimmer of light might be if National get in next time and wind it back.

                    cheers,

                    Donna
                    But what's wrong with paying tax on your income Donna?

                    Comment


                    • #11
                      What income?
                      Want a great looking concrete swimming pool in Hawke's Bay? Designer Pools will do the job for you!

                      Comment


                      • #12
                        Originally posted by Aston View Post
                        But what's wrong with paying tax on your income Donna?
                        Yeah what income - I guess that how Apple, Goggle, and all the other big businesses whom make lots and lots of $$$ here and pay no tax responded. The only difference is - they're untouchable.

                        cheers,


                        Donna
                        SEARCH PropertyTalk, About PropertyTalk

                        BusinessBlogs - the best business articles are found here

                        Comment


                        • #13
                          Originally posted by donna View Post
                          Yeah what income - I guess that how Apple, Goggle, and all the other big businesses whom make lots and lots of $$$ here and pay no tax responded. The only difference is - they're untouchable.

                          cheers,


                          Donna
                          Well OK... What's wrong with paying tax on capital gains. 'Investors' seem to be OK about the 'traders' paying capital gains but not so OK about paying the same tax themselves. Why not? Seems fair to me.

                          Comment


                          • #14
                            Originally posted by Aston View Post
                            Well OK... What's wrong with paying tax on capital gains. 'Investors' seem to be OK about the 'traders' paying capital gains but not so OK about paying the same tax themselves. Why not? Seems fair to me.
                            The unfair part is
                            - gain in value on buisness sale - no tax and no timeframe
                            - gain in value on personal home sale - no tax
                            - gain in value on shares held long term - no tax

                            Shouldn't all things be treated the same?

                            Ross
                            Book a free chat here
                            Ross Barnett - Property Accountant

                            Comment


                            • #15
                              Well the way I see it is that property speculators, traders, investors are all trading in other people's homes... And making money from it, big money. To me that is immoral because the more money you are making, the less likely your tenants will ever be able to afford to buy their own home. So I think it is totally fair and just for there to be a Capital Gains Tax on houses, other than the PPOR.

                              I don't believe investors are at all concerned about fairness, they are more concerned about their own personal wealth.

                              I think the Brightline should be extended out to 10 years, that would be even fairer IMO.

                              Comment

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