2 Year Bright-line Test

3 September 2015


2 Year Bright-line Test

Restructure before 30 September 2015, otherwise who cares???


In general, if you are a true long term hold investor, the 2 year Bright-line won't affect you.


Are you looking at putting your rentals into a Trust or LTC?

Under the current Issues paper and draft legislation, there is no relief for restructures.  So, for example:


  • You own a rental for 10 years
  • Transfer to Trust on 1/12/15 for $500,000 at the fair market value
  • Then Trust sells rental on 1/12/16, one year later for $550,000
  • Trust has held rental for under 2 years, so under information in Issues Paper and draft legislation, the $50,000 gain will be  taxable.

So I would recommend if you are thinking of restructuring to a Trust or LTC, to do this before 30 September 2015.


Bright-line Facts

The main aim of the new legislation is to tax the gain on sale of residential rental or speculative properties, if sold within 2 years.  There is a specific exemption for personal homes, so that sale of personal homes are not taxed, but bear in mind the two points below regarding personal homes.

1. Only applies to a purchase of the property where the Sale & Purchase Agreement is entered into on or after 1  October 2015.
    So if you have an existing rental, it will not be affected by new rules, unless you restructure it.

Start date for 2 years    Settlement date                                   ]    Shortest
     Sale date for 2 years 
   Date of Sale & Purchase Agreement  ]   possible time

3.  Residential Land     Not farmland or business
  Includes residential sections

4.  Personal Home Exemption  
  Does not apply if already used the exception twice in the previous two years.

5.  Current tax laws still apply.  So if you buy a property with the intention of selling for a profit in November 2015, then sell 2 1/2 years later, the gain is still taxable as intention was to sell for a profit.

6.  If you get clever, still taxed.
     For example, if you have a company that purchased a property, then you sell the company after 1 year, there is a specific clause to catch this.

7.  Main Home Exclusion
Must be "used predominantly, for most of the time that the person has owned the property, as their main home".

I would not expect many property investors to be affected by these new rules but wanted to keep you informed.

Kind regards
Ross Barnett


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