In recent years the Government has made various changes to the tax law around land sales and purchases and one needs to be very careful about any possible tax consequences that may be associated with any purchases or sales of property / land, be it regarding GST or income tax.
Below is a perfect example of how you can be caught for tax unwittingly and with a seemingly innocuous transaction:
Below reproduced from CCH / TEO Q & A Service:
QUESTION:
A couple purchased a residential property in January 2021 and are putting the home on the market 18 months or so later.
The couple have separated and are living in separate homes (with one living in the property that is being put on the market and using it as their main family home). The children are adults and do not live with the parents.
No improvements have been made to the home, there was no intention to sell when purchased, no subdivision has taken place and the vendors are not builders or developers.
Is the sale of this house, which is the main family home, subject to the bright-line test?
ANSWER:
Because the property was acquired in January 2021, the sale will be subject to the 5-year bright-line test in s CZ 39 and the main home exclusion in s CZ 40. The main home exclusion states that the bright-line test does not apply to a person who disposes of residential land if, for most of the bright-line period, the land has been used predominantly for a dwelling that was the bright-line grandparented home for the person.
Bright-line grandparented home means, for a person, the one dwelling:
For the other owner who has moved out of the property, the main home exclusion will apply only if the period for which the property was their main home (ie, from January 2021 until they moved out of the property) is longer than the period that it has not been their main home (ie, from the date they moved out of the property to the date they enter an agreement to sell the property). If the other owner has lived elsewhere for longer than living in the property, they will be subject to tax on the sale of their half interest in the property.
References:
Income Tax Act 2007, ss CZ 39, CZ 40, YA 1 ("bright-line grandparented home").
Below is a perfect example of how you can be caught for tax unwittingly and with a seemingly innocuous transaction:
Below reproduced from CCH / TEO Q & A Service:
QUESTION:
A couple purchased a residential property in January 2021 and are putting the home on the market 18 months or so later.
The couple have separated and are living in separate homes (with one living in the property that is being put on the market and using it as their main family home). The children are adults and do not live with the parents.
No improvements have been made to the home, there was no intention to sell when purchased, no subdivision has taken place and the vendors are not builders or developers.
Is the sale of this house, which is the main family home, subject to the bright-line test?
ANSWER:
Because the property was acquired in January 2021, the sale will be subject to the 5-year bright-line test in s CZ 39 and the main home exclusion in s CZ 40. The main home exclusion states that the bright-line test does not apply to a person who disposes of residential land if, for most of the bright-line period, the land has been used predominantly for a dwelling that was the bright-line grandparented home for the person.
Bright-line grandparented home means, for a person, the one dwelling:
- that is mainly used as a residence by the person (a home), and
- with which the person has the greatest connection if they have more than one home.
For the other owner who has moved out of the property, the main home exclusion will apply only if the period for which the property was their main home (ie, from January 2021 until they moved out of the property) is longer than the period that it has not been their main home (ie, from the date they moved out of the property to the date they enter an agreement to sell the property). If the other owner has lived elsewhere for longer than living in the property, they will be subject to tax on the sale of their half interest in the property.
References:
Income Tax Act 2007, ss CZ 39, CZ 40, YA 1 ("bright-line grandparented home").
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