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.
 

Restructure

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.

2.  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