Bright-line test
A “bright-line test” applies to sales of residential land from 1 October 2015. A sale is taxable if the disposal occurs within five years of acquisition (or two years if the land was acquired before 29 March 2018). The purpose for buying the land is irrelevant.
There are three principal exceptions:
- main home exclusion
- inherited land, and
- a transfer under a relationship property agreement.
The provision is unlike the other land disposal provisions in that it applies only to “residential land”. Residential land is defined as land that has a dwelling on it, or land for which the owner has an arrangement to build a dwelling on it, or bare land that – because of its area and nature – is capable of having a dwelling built on it.
Land used predominantly for business premises or as farmland is specifically excluded from being residential land.
A “main home exclusion” applies to residential land sales that would otherwise be caught. The exclusion applies if the land has been used predominantly – for most of the time that the person owns the land – as a dwelling that was the person’s main home.
If the property is owned by a trust, the rules become more complex.
The main home exclusion can only be used twice within a two-year period.
If a land sale is taxable under under the bright-line test, any losses arising are ring fenced and can only be used to offset gains from other land sales (including land sales taxable under the other land disposal provisions). There is also an anti-avoidance rule preventing landowners from using losses where land has been transferred to an associated person.