The new government initiated Bright-Line Test was enacted into NZ law on the 12th November 2015 and together with this come a warning to property investors.
Just because the new law states that any investor holds onto an investment property for longer than two years does not automatically release them from their tax payment obligation.
Revenue Minister Todd McClay said the Bright-Line test is a new tool to ensure that property investors who benefit from a higher price at sale pay their fair proportion of tax just like every other Kiwi should
The new measures will require investors to pay income tax on capital gains from residential investment properties that were bought after the 1st October 2015 and sold within 2 years of purchase date. Remember this only applies to investment properties and the new rules are not applied to an owners’ main home, inherited property or transferring ownership of relationship property.
Be warned – says Mr McClay, the government has for years had an ‘intention’ test in place when it comes to buying and selling residential property in NZ, and even though the two-year time-line may have passed the IRD can still apply this Intention Test and if found that the intention was to sell the property just outside of the 2-year minimum period then you will have a red target on your back as the IRD position is you must pay income tax on the gain.
In a recent interview Mr McClay stated “The proposals in this bill, together with recently enacted rules requiring buyers and sellers of property to provide an IRD number, and non-residents to also provide the foreign equivalent of an IRD number and a New Zealand bank account number, will help Inland Revenue to better identify investors in New Zealand’s residential property and ensure they pay their fair share of tax on gains from property sales.”
McClay said IRD would be watching transactions and would be able to enforce income tax rules on people who tried to avoid their obligations outside the two-year period.
IRD have allocated as many as 100 compliance officers to undertake the policing of this new legislation so are well armed and positioned to ensure investors comply with their tax obligations.