The Taxation (Bright-Line Test for Residential Land) Bill has recently been passed, which aims to improve compliance with the current land sale rules under the Income Tax Act 2007. One of the most significant changes introduced by the Bill is the shift away from the “intention test” (which makes gains from the sale of land taxable when bought with the intention or purpose of resale), to a new objective “bright-line” test. The “bright-line” test will require income tax to be paid on any gains from the disposal of residential property which is acquired and disposed of within two years. The “bright-line” test only applies to the disposal of residential land. Disposal of property that is the main home of the owner will be excluded from the “bright-line” test, as will inherited property, and a transfer under a relationship property agreement.
The “bright-line” test will apply to the sale and purchase of residential land that is entered into on or after 1 October 2015.