Bright line liability?
Question from James updated on 22nd May 2020:
My LTC company purchased a two-bedroom unit in May 2015. It has been rented out ever since. If the company was to sell this unit today, with the intention of re-investing all of the proceeds into another larger rental property, would the company be liable to pay the bright-line capital gains tax? And if so, is the bright-line test pro-rata in any way? For example, would it be a minor tax as the time owned has been for four and a half years? Or do I really need to wait until May 2020 to be exempt from this tax?
Our expert Mark Withers responded:
The bright line test was introduced initially with a two-year count for property under offer after 1/10/15. The count moved to five years for property acquired after 29 /3/18. So in your case, it seems you acquired your property before the law was introduced. In any event you have held it more than two years so the bright line test would not apply.
Had it applied, the count starts from the date the title was registered and runs to the date you entered a contract to sell. There is no pro-rata. A disposal gain is fully taxable at your marginal income tax rate. So much for there being no capital gains tax on residential property!
Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.