Bright line exemption?

Question from YC updated on 29th November 2019:

We recently subdivided and built a second house on our property, which was purchased before the brightline test came into effect. We sold the original home to pay off debt and moved into the new house. Due to unforeseen health reasons we are looking to sell the current (new) house to cover medical bills. The build took about 12 months and we've lived in the new house for about five months. Would we be taxed if we sell now? I know we can sell up to two family homes in two years, but I'm unsure how that would apply in this case.

Our expert Mark Withers responded:

If the land was acquired prior to the brightline test being introduced there will not be a tax issued with respect to the bright line. Note though that section CB12 can tax gains on disposal where land is developed or divided within 10 years of acquisition when the work is more than minor.

There is a residential exemption to CB 12 in CB 17 that excludes from tax land that has been used as a taxpayers residence where the land was less than 4500sqm. It also covers a situation where the division and development was done to enable the taxpayer to live on the land. It would seem that these exclusions may be useful to you.

One note of caution though; CB17 does not cover beneficiaries of a trust occupying the land. So no exclusions apply if the property is owned by a trust and the division and development work were to allow a beneficiary to live on the land. It's a nasty trap and is often problematic in New Zealand where we have a proliferation of trusts.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

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