The Taxation (Bright-line Test for Residential Land) Bill, introduced on 25 August, will enact another of the property tax measures announced in Budget 2015. Key changes are as follows.

• Income tax will be payable on any gains from the disposal of residential land acquired and disposed of within two year.
• “Residential land” will be specifically defined but will exclude land that is used predominantly as business premises or farmland.
• There will be three specific exceptions to the rule – in some circumstances a disposal of land that is the main home of the transferor (the main home exemption), a disposal of inherited land, a transfer under a relationship property agreement.
• The main home exemption will apply if the property has been used predominantly, for most of the time that the person has owned the land, as their main home (ie when it has been mainly used as their residence).
• Subject to limitations, the main home exemption will apply when the dwelling is the main home of a beneficiary of the trust but not if the “principal settlor” (the one settlor that has settled the most property, by value, on the trust) has a main home that is not owned by that trust.
• The main home exemption cannot be claimed if the owner has claimed the exemption twice in relation to other properties in the previous two years.
• Taxpayers will be allowed deductions for land subject to the bright-line test according to ordinary rules.
• Losses arising only from the bright-line test (excluding losses arising from a transfer of land to an associated person) will be ring-fenced and available for offset only against taxable gains arising under the land sale rule.
• There will be specific anti-avoidance rules to prevent the use of land-rich companies or trusts to circumvent the bright-line test.
• A “non-active” complying trust will not have to file a return of income for tax years in which the trustee derives no income, has no deductions, has not disposed of any trust assets and has not been a party to transactions that have given rise to income in another person’s hands or have given rise to fringe benefits to any employee.

The bright-line test will apply to land for which an agreement for sale and purchase is entered into on or after 1 October 2015, and which is subsequently disposed of. A copy of the Bill and related commentary can be viewed at taxpolicy.ird.govt.nz/news

UPDATE: The Taxation (Bright-line Test for Residential Land) Bill was passed on 16 November 2015.