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  1. #1

    Default Bright Line Test and Tax

    If we buy a home, live in it and renovate it, spending 12+ months and several thousand dollars and then sell it, is it tax free capital gains?

    I've read IRD determine what your intention was when you bought it, but who is to say they can prove our intention wasn't to keep it?

    Considering this vs buying properties we don't live in, buy/renovate/sell within a couple of months which is undoubtedly taxable. Flipping essentially.

  2. #2

    Default

    The bright line test is designed to make the ambiguous 'intent' issue less ambiguous. The assumption with the Bright line test is that if you sell within the bright line period then it is deemed you were not intending to keep. I think the primary residence might be exempt. But if you don't live in it there are a few exceptions to this - i think death or divorce might get you out of the BL test but that's pretty drastic and I'd be inclined to pay the tax and 30% on the gain is a better outcome than 50% on all my assets.

    The thing about the IRD is they can be retrospective in that they can look back at your dealings over time. If you create a pattern of buying, living in the property whilst renovating then selling for a tax free profit, I think they might be interested in what you're up to.
    Last edited by Don't believe the Hype; 01-10-2018 at 06:02 PM.

  3. #3
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    3,684

    Default

    If it is your true personal home, then exemption from Brightline Test for first 2 sold within 5 years.

    If sell 3, then 3rd would be taxable.

    This is quite clearly setting out parliaments intention, that for normal people who sell a couple of personal houses every 5 years, this isn't taxable.


    In your situation
    - 12 plus months is a long time.
    - Watch pattern

    I would be trying to use the Brightline exemption for personal home.

    Ross
    Not sure where to start, book a free chat for 5-10 minutes https://cswaikato.co.nz/services-pro...s-hamilton/201
    Ross Barnett - Coombe Smith Property Accountants


  4. #4
    Join Date
    Aug 2014
    Location
    Christchurch
    Posts
    41

    Default

    Quote Originally Posted by Purple Property View Post
    but who is to say they can prove our intention wasn't to keep it?.
    Your real estate agent/s, property finder people, solicitor, mortgage broker, and bank for starters so keep it to yourself if your intent is to renovate and onsell for a profit.

  5. #5
    Join Date
    Aug 2003
    Posts
    7,973

    Default

    There would be lots of property owners (probably investors) moving every 5 years to find a do upper to do up and pocket the profit. Why not if your own home is exempt and if you're timing the sale to happen outside the 5 years seems a good strategy to me esp. if you're young and you can do it 8 - 10 times aye.

    cheers,

    Donna
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  6. #6
    Join Date
    May 2004
    Posts
    2,952

    Default

    Quote Originally Posted by donna View Post
    There would be lots of property owners (probably investors) moving every 5 years to find a do upper to do up and pocket the profit. Why not if your own home is exempt and if you're timing the sale to happen outside the 5 years seems a good strategy to me esp. if you're young and you can do it 8 - 10 times aye.

    cheers,

    Donna
    Might still run foul of IRD if they detect a pattern. There was a case a few years back when IRD successfully took a case against an owner who had bought 20 years earlier, and was deemed to fit the intention test.

  7. #7
    Join Date
    Aug 2003
    Posts
    7,973

    Default

    Even though it was where they were living therefore their PPOR?

    I can't see how they could even tap into it without going back on the rule of PPORs are exempt. I mean, who doesn't over time 'improve' their property to some degree before selling?

    I hear you though - you're basically saying 'big brother is watching' (George Orwell's 1984), so of course the intention for any sale is never about the $$ etc.

    cheers,

    Donna
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    BusinessBlogs - the best business articles are found here



  8. #8
    Join Date
    May 2004
    Posts
    2,952

    Default

    I don't remember the details, Donna, but there must have been something that triggered IRD to take a look. Maybe something completely different.

  9. #9
    Join Date
    Oct 2015
    Location
    Rotorua
    Posts
    499

    Default

    When buying PPOR you don't have to supply IRD number. So technically you're not even on the radar.

  10. #10
    Join Date
    Jun 2004
    Posts
    10,675

    Default

    Quote Originally Posted by AlFa View Post
    When buying PPOR you don't have to supply IRD number. So technically you're not even on the radar.
    I thought you needed an IRD number for all houses now - I could be wrong and can't be bothered looking it up though.


 

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