Politics or Good Policy – Round Two

Last month we wrote an article commenting on the new “Bright-line Test” for residential land, which was to apply from 1st October 2015, although the Bill containing the legislation had only just passed through its first reading in Parliament on 9th September 2015.
Since that article was written, the Bill has now progressed through its final readings and was passed into law on 16th November 2015, although not without some amendments having been made to the original draft of the legislation first. It is pleasing to note in this regard, that one of the concerns we outlined in our previous article surrounding the restriction on trustees to be able to claim the “main home” exemption where the trust’s principal settlor also had a main home in their own name, has been addressed.
The restriction on trustees in this instance will now only apply where the principal settlor is also a trustee of the trust, a beneficiary of the trust, holds the power of appointment or removal of trustees or is a decision maker under the trust deed.
Other amendments of note include:

  • Clarification that the bright-line test will only apply where other provisions taxing land transactions do not.
  • Clarification that while the application of the bright-line test itself will be determined by whether the land is disposed of (usually being the date the vendor enters into a contract with the purchaser) within the requisite two year period, usual income derivation rules (usually settlement date for land transactions) will determine which income year the taxpayer will be required to return the income.
  • Amending the present definition of residential land which refers to including bare land “that because of its area and nature is capable of having a dwelling directed on it” (now deemed too broad a definition) to instead having a reference to zoning rules to limit application to bare land zoned for residential purposes.
  • Clarification that the “farmland” exclusion will be available where the owner of the land uses the land for a farming business, removing the existing requirement to satisfy an economic unit concept test.

A special report on the new rules was released by the Inland Revenue on 18th November, which can be located by clicking here.
Should you have any questions regarding any of the content in our article or with respect to the new Bright-line rules in general, please do not hesitate to give us a call.

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