Getting bright line right

Our Experts Answer:

Firstly, merely changing the use of a property does not represent a sale as far as the bright-line rule is concerned. Secondly, if you have owned this property for four years, then any sale either into an associated company or to a third party will not be subject to the bright-line rule. I would be surprised if your accountant said that the change of use triggers a sale as far as the bright-line rule is concerned.

Perhaps they meant the proposed transfer of the property into your rental company will trigger a new acquisition under bright-line rules. This is an important point that you should take note of. Although there may be advantages in moving this rental property into the company, doing so does trigger a restart of the bright-line “clock”, which now runs for five years.

This means that should you move the property to the company and then decide you want to sell it to a third party within five years, any gain that arises in the company will be subject to tax under the bright-line rule.

Accordingly, you need to tread carefully when moving a property into new ownership and think about what your long-term plans are for that property. Note also that the bright-line rule is not the only land tax provision that can apply - there is a raft of others that can cause you to have a tax liability when restructuring.

You should seek advice before committing to this transaction (ideally from an accountant who is not only well-versed with the bright-line rule, but also the rest of the land tax provisions).