Clarification on when the new brightline test will start
As detailed in the Commentary on the Amendment Paper to the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Bill: (For full details click here: https://www.taxpolicy.ird.govt.nz/news/2024/2024-ap-multinational-tax-bill.)
“It is proposed that the current 10-year bright-line test and 5-year new build bright-line test in section CB 6A, and the 5-year bright-line test in section CZ 39 be repealed and replaced by a new 2-year bright-line test.
This new test will apply if the person’s bright-line end date for the land is within two years of the person’s bright-line start date.
For standard sales of land, the bright-line start date will continue to be the date the transfer of the land is registered to the person under the Land Transfer Act 2017……
This new test will apply to disposals of residential land where the bright-line end date occurs on or after 1 July 2024. The new 2-year bright-line test will apply if the bright-line end date is within two years of the bright-line start date.
Example 3: Application date
Jonathan entered into a sale and purchase agreement to acquire residential land in late 2021 with the transfer being registered on the title on 5 January 2022. He used the land as a rental property. He enters into a sale and purchase agreement to sell the land on 20 June 2024. The current 10-year bright-line test will apply to tax the disposal of the land. The land was acquired after 21 March 2021, and the bright-line end date for the land (being the date the sale and purchase agreement was entered into), was prior to 1 July 2024.
Martin also acquired residential land with a bright-line start date on 5 January 2022, which he used as a rental property. He disposes of the land on 27 July 2024. Because the bright-line end date for the land is after 1 July 2024, the new 2-year bright-line test will apply. But because the bright-line end date is more than two years after the bright[1]line start date, the disposal will not be taxable under the new 2-year bright-line test.”
