Watch for bright-line tax rules
Looking to sell your property? The market is hot at the momentandmanypeople are testing the waters— but under the bright-line rules youmay have tax to pay.
The rulemeans that if you bought a property after October 1, 2015, youmayhave to pay tax on the gains youmake.
Properties bought between October 1, 2015 andmarch 23, 2018 are taxedwhenthey are sold within two years. As of March 29, 2018, any properties sold within five years are captured.
This does not apply to your main house, if you’ve lived in it formore than 50 per cent of the time you’veownedit, or one you inherit. But it will capture manyproperty investorswho are thinking about sellingnow whiledemandis running high.
It’s best to be upfront and address your obligations, rather than thinkingyou will try to fly under the radar— the IRD is again starting to take a proactive stance towards property transactions that might qualify for a tax payment.
The department has been sending letters to peoplewho have transacted between the timeframes of the bright-line rules and I’ve been surprised to see the level of detail in the letter.
I’d expect to see the IRD moveto additional audit measures in the near future.
Youmaynotknowthis but the bright-line test also applies if the property is in another country
Andit’s important to check the dates of the transaction— generally the dates to consider are the settlement date on purchase and the date you enter into an agreement on the sale.
The mainhomeexclusion, which allows owner-occupied properties to escape the tax, can only be used twice in any twoyear period.
As always get advice as everyone’s circumstances are different— and if the tax does apply to you and you’re lateyou maybe able to reduce extra costs with voluntary disclosure.