The Bright Line Test To Be Extended To Five Years

The Government introduced a Supplementary Order Paper to a Bill already in Parliament for the extension of the two year Bright-line test to five years.

The two year Bright-line test was brought in for Sale and Purchase Agreements entered into on or after 1 October 2015 and taxes capital gains on the sale of residential property where the property is sold within two years from the purchase date and is not used as the main home or is an Estate sale.

The law is being changed by increasing the time frame from two to five years, and the new rule will apply to Sale and Purchase Agreements entered into on or after the date of Royal assent, which may be as early as March 2018.

Assuming no other complicating factors, such as association with dealers, developers and builders or the application of the intention test then we anticipate the rule to apply as follows:
• For agreements entered into prior to 1 October 2015, no Bright-line application;
• For agreements entered into on or after 1 October 2015 but before the Bill receives Royal assent, a two year Bright-line; and
• For agreements entered into on or after the Royal asset, a five year Bright-line rule.

Some commentators have suggested that there is a window for purchasers to get into the two year Bright-line category if they purchase prior to Royal assent. This should not be done without taking advice.

There could be an adverse inference that such a purchase falls foul of the intention test, and the capital gain will then be taxable no matter how long the property is ultimately held, provided no other exemptions apply.

Please contact your usual tax advisor should you require any advice regarding the above.

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