Buying off the plan? The bright-line test and you
We’ve talked before about how changes to tax law around buying and selling property might affect you. Now that the changes are in operation and the bright-line test is being applied to determine tax liability, an issue highlighted only recently might leave you exposed.
As we’ve discussed before, people who buy or sell a property within two years of acquiring it must pay tax on the gain. The main home is exempt and there are some other exceptions such as inheritance and relationship break-ups.
However, what happens when you have bought a house and land package off the plan but titles havent been issued yet and settlement is still 12 months off or more? Do you intend to move the asset into your family trust on settlement? If you have signed the purchase agreement in your own name but want to have the family trust settle the deal, it looks like you may be caught under the bright-line test. Inland Revenue may deem your interest to have been disposed of within two years, in which case if there is a gain it will be taxable.
A spokesperson for Inland Revenue has commented that “in the case of a purchase off the plans, the house has never been used as the main home and therefore cannot qualify for the main home exemption”. Inland Revenue have no plans at this time to review their position on this. If you think this might affect you, please contact us to discuss your tax position.
Legacy Chartered Accountants has offices in Whakatane and Tauranga