Bright-line 'traps': New bill proposed

Peak membership body welcomes bill's intent

Bright-line 'traps': New bill proposed

A new bill has been proposed in New Zealand as a response to Chartered Accountants Australia and New Zealand’s (CAANZ) warning of bright-line traps for nomadic homeowners.

Under the current rules, “main homeowners” have up to 365 days in which they do not need to occupy the home.

However, CAANZ warned that, in many instances, 365 days would not be long enough to protect homeowners from the bright-line test coming into effect - for example, for homes that take longer than 12 months to build.

Now, a new taxation bill has been proposed to give new homeowners more leeway to avoid getting caught out by the bright-line test if their home takes more than 12 months to build.

CAANZ has welcomed the proposed bill. However, it still has questions, particularly how the phrase “reasonable efforts to construct a dwelling intended for use as their main home” will be interpreted. It also asked when the reasonable efforts to construct a dwelling commence and what is captured by the term “to construct.”

“Construction arguably implies the physical erection of a home. What needs to be included here is the whole build process. It’s important that resource consenting, geo-tech reporting, building design, and other elements of the build process are covered in this change,” said NZ Tax Leader John Cuthbertson.

“It’s also important that the short period of time between when an owner acquires the land and starts actively engaging in the building process falls with the main home exclusion. That’s something all parties would want to see.

“This is recognition that to build a house, you have to purchase a piece of land, and that building doesn’t commence immediately, but within a reasonable time.”

Read more: Experts reveal impact of new tax rules on property owners

Nomadic homeowners aren’t the only ones affected by the property tax rules, with divorce lawyer Jeremy Sutton stating that the rules could have consequences for couples going through a break-up, particularly those who owned a holiday house or investment property.

“When a couple separates, they need to divide their relationship property. If this includes two (or more) properties, usually they will keep one each or sell the secondary property, and if a property falls within the bright-line test, there are tax implications,” Sutton said, as reported by Stuff.

“Also, if one person keeps the secondary property, they may be liable for tax if they sell it within the relevant period, whereas the person who retained the family home would not be.”