One of the worst kept secrets of 2018 was the increase in the Bright Line test. This has now passed into legislation with effect from the 29th March 2018. It was also the first “test” for the Government on changes of Tax under the National Government and the impact on Tax planning.
The initial documentation indicated (and we were planning for) that the test applied to all property purchased after October 2015 when the first two year test came into effect. However, the legislation has been grandfathered, which means that the five year rule applies only to property purchased after 29th March 2018. This means, in practice, that if you purchased a property in December 2016, it will be tax-free on sale anytime after December 2018, not December 2021 as first thought.
For good records, the purchase of passive Rental properties needs to be accurately recorded, as we now have two time frames for taxing; pre-October 2015 & pre-March 18.
And for those of you who are wondering, what does Bright Line mean? A Bright Line test is a legal principle that provides clear and defined rules that will give a consistent answer when applied.