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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
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
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