Property and Tax - Brightline and more
On 23 March 2021, changes to tax rules for investment properties took investors by surprise. There has been widespread discussion about the impact. In overview:
Bright-line extension Different rules apply for different scenarios:
‘Change of use’ and the main home exemption Under the original rules, if the property had been used as the person’s main home for over half of the relevant bright-line period, there was a complete exemption from tax under the bright-line test. Under the changes, properties acquired on or after 27 March 2021 are subject to a ‘change of use’ rule. If a property switches from being the owner’s main home for more than 12 months, then a proportion of the sale profits of a property sold during the bright-line period will be taxed, based on the ratio of time that the property was and wasn’t used as the main home. The existing main home exemption rules continue to apply for residential property acquired on or after 29 March 2018 and before 27 March 2021. Interest deductibility The rules are graduated depending on when the property is acquired:
Property developers and builders who build properties to sell will still be able to claim their interest expenses. An exemption for new builds acquired as residential investment property also applies. Short-stay Accommodation Residential properties used to provide short-stay accommodation, where the owner does not live in the property, are subject to the bright-line test and cannot be excluded as business premises. Our Recommendation If you own a residential rental or one used for short-stay accommodation, or if you are considering buying a second property, please contact us to discuss the tax implications. |