LEGAL
The bright-line period is extended to 10 years – What does it mean?
Lindsey Smith, Senior Registered Legal Executive, Rainey Collins
The Government has recently announced an increase to the bright-line period for residential land under the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Act (“the New Legislation”). The increased ten year period came into force on 27 March 2021. What is the bright-line test? Firstly, let’s recap what the bright-line test is. It is a law used to determine if a residential land owner is required to pay tax on any profit of a sale. The bright-line rule is clearly defined and leaves no room for interpretation. You can think of it as someone drawing a line in the sand. It’s clear when you cross that line. It does not allow for a change in circumstances. For example, illness or a change in financial circumstances.
Key Dates The 10 year bright-line period A ten year bright-line period will apply to residential properties acquired from 27 March 2021. The 5 year bright-line period The five year bright-line period applies to properties acquired on or after 29 March 2018 until 26 March 2021. The 2 year bright-line period The two year bright-line period applies to residential properties acquired between 1 October 2015 and 28 March 2018. Any properties purchased prior to 28 March 2018 will of course no longer be captured.
Bright-line start date The bright-line period starts from the date of registration of the transfer of title,
which is generally the settlement date. Therefore, if a registration of the transfer of title (i.e. settlement) did not occur by 27 March 2021, the ten year bright-line period will apply, unless the transitional period below applies.
Transitional Period There is a transitional period for agreements entered into prior to 27 March 2021, even if settlement occurred after this date. Those who signed agreements during this period may fall within the five year bright-line period. Owners should seek advice from their lawyer or accountant to clarify the bright-line position.
New Builds The bright-line period for new builds is calculated differently. The bright-line period generally starts the date the agreement is signed (rather than the registration/ settlement date). The start date may be affected by a nomination of another entity to complete the purchase. The ten year bright-line period is not intended to apply to new builds. It is intended that new builds will remain subject to a five year bright-line period. It is our understanding that the definition of a “new build” will be subject to consultation later in 2021. Continued over leaf
WINTER 2021
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