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New bright-line test

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From 1 October 2015, the Parliament introduced some changes to the property rules called as Bright-line test. The purpose of the test is to reduce the number of foreign speculators on NZ property and thus maintain positive housing prices of big cities in New Zealand. This rule only applies to residential properties bought on or after 1 October 2015. The idea behind the test is that taxpayer has to pay tax on the gain when you selling your property (with some exceptions). By taxing on the gain, it somewhat discourages speculators for housings as the profit is not as good as before.

 

The rule says that taxpayer will pay tax when they buy or sell a residential property within two years, unless an exception applies. Other property rule still remains the same. It means that if you have any other residential property other than your main home and you sell it within two years, the gain on sale will become taxable.

 

Thus, the concept of main home under the bright line test is very important. The IRD defines the main home as taxpayer need to have used a property as their main home for 50% or more of the time that you’ve owned it. Moreover, taxpayer also needs to use more than 50% of the area of the property as your main home. This means that if you rent your house out and use less than 50% of the area in the house. You cannot use that property as your main house under the bright-line test. Other factors the IRD will take into consideration to determine the taxpayer’s main house as below:

  • Where your personal property is kept
  • The amount of time you spend living in each house
  • Where your immediate family lives
  • Where your social ties are strongest
  • You use of the home
  • What other times (employment, business, economic) you have with the surrounding community.

Exclusion to the test

  • There is a main home exception to the bright-line rule. The rule does not apply to your main home; it means that you do not have to pay tax even though you sell your main home within two year. However, taxpayer must be careful about their intention with their purchase. The IRD also makes it clear that the sale of a third property in two years will still be taxable as the main home exception does not apply.
  • The bright line rule also does not apply if you sell a property you inherited
  • The main home exception applies even if your property held in a trust. However, taxpayer must prove that the house was the main home of the principal settlor of the trust and it was the main home of a beneficiary of the trust.

 

Other matters

  • If the taxpayer sells their property outside of the 2 years period, bright line test will not apply. However, they need to consider the intention tests. If they have an intention to make profit on the property, it will still be taxable income for the seller.
  • If the property sells under the bright line test and it makes a loss, you can use the property losses to offset with income you earn. Please note: Losses can only offset against income gain on sale of property (not on wages and salaries income). You can carry forward the loss.
  • Income gain from the sale of property is your taxable income. 

 

 

Disclaimer

Information provided above is of general use only. If you intending to rely on above information consult us or seek professional advice. IBBZ Accounting or any of its employee is not responsible should the information above result in any kind of loss to you directly or indirectly. 

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Saurav Wadhwa is a Principal Accountant at IBBZ Accounting Limited


M Bus (TAX) PG Cert (LAW) CA CPA


Membership and Qualification:


- Masters in Professional Business Studies (Taxation) with Distinction from Auckland University of Technology


- Post Graduate Certificate in LAW, Law School at Auckland University of Technology


- Chartered Accountant(CA), New Zealand Institute of Chartered Accountants (NZICA)


- Certified Practicing Accountant(CPA), CPA Australia


- Bachelor of Commerce, Grad. Cert. in Business from Auckland University of Technology


Saurav Wadhwa


Saurav has many years of practical experience in tax & accounting services and is the co-founder of IBBZ Accounting Limited.  He is qualified both in law and accounting. Saurav has worked in various tax & accounting specialist roles for large corporates in New Zealand. He loves to work with Small Businesses.


His key focus is on:



  • Tax advisory for small and family operated businesses on a wide range of taxation issues.

  • Legitimate tax saving structures.

  • Advising on range of new business issues.

  • Ensuring business growth is attained.

  • Effective cash flow planning.


Saurav specialises in Tax Disputes resolution, Tax Relief applications, Tax Debt resolution/management, and representation in Tax Audit. Saurav can represent you in Taxation Review Authority,  in Tax Dispute Court Cases or he can represent you during Tax Audit Investigations.


Blend of skills in Tax laws and accounting, makes him perfect advisor for small businesses and individuals like you. Saurav understands how to safeguard your business from creditors risk, maximise the business growth and pay low taxes. He can be your good strategic and business partner. He is of a friendly nature and easily approachable.


Saurav understands the numbers very well. He is a qualified Chartered Accountant and registered with highest professional accounting bodies of Australia and New Zealand. He can help you to plan for the future to satisfy all your financial needs.



Consumed by a hunger for knowledge, Saurav has never stopped furthering his education or expanding his pool of knowledge. Nothing gives Saurav more satisfaction than assisting his clients to achieve their financial goals. His diligence, passion and accuracy has earned him a reputation as a reliable professional who strives to serve his clients above and beyond the call of his duties.



Saurav was nominated for the Best Accountant of the year and the Young Entrepreneur of the year, and his company IBBZ Accounting won the award of Best Small Business 2014. In 2015 Saurav won the award of Best Accountant of the Year.


In 2017 Saurav was appointed as a committee member to New Zealand Public Practice Board of CPA Australia. 



Saurav is a dedicated family man. Saurav is very fond of outdoor activities and enjoys pretty much all outdoor activities: running, bike, motorbike, snorkel, fishing, skiing etc. Saurav, is also a self-confessed workaholic, spends some of his free time thinking about his client’s affairs and forecasting their financial future.


He can be contacted on saurav@ibbz.co.nz  or 09 272 8050

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Guest Monday, 25 September 2017