Bright line tax inches closer

The Taxation (Bright-line Test for Residential Land) Bill has now passed its second reading in Parliament.

While the start date for the bright line test was October 1, the hotly debated measure won’t actually become law until it passes its third reading in Parliament.

Once that occurs, the bright line test will require income tax to be paid on any gains from residential property purchased on or after October 1 that is sold within two years.

There will be some exceptions to the bright line test. They include the sale of an owner’s main home, inherited property, or the transfer of property in a relationship settlement.

Revenue Minister Todd McClay said it is a crucial part of the Government’s push to improve compliance with the tax rules on the sale of residential property.

It will ensure that people pay their fair share of tax, he said.

“By supplementing the current ‘intention’ test in the Income Tax Act, it will make the rules simpler for taxpayers to understand and easier for Inland Revenue to enforce.”

There has been much speculation about how the bright line test might impact on Auckland’s supercharged market.

Labour Party Housing spokesperson Phil Twyford said the latest QV data, which shows Auckland house values are still rising, proves the spectre of the bright line test hasn’t curbed speculation.

“This much-touted measure to clamp down on skyrocketing house prices has been totally ineffective at reducing prices. It has failed to deter speculators from buying into the Auckland market.”

However, given the bright line tax has yet to become law, it is probably too soon to ascertain any impact from it.

Previously, both Chartered Accountants Australia and New Zealand and the New Zealand Law Society have voiced their concerns about the bright line tax.

Both groups are concerned that it will be ordinary people forced to sell their homes, due to changed personal circumstances, who will be caught out by the test rather than property speculators.