The government is proposing to change the current timeframe for the ‘bright-line’ test for property from two years to five years.
The current test
The current test requires income tax to be paid on any gains from residential property sold within two years of acquisition unless the person selling can claim an exemption. The amendment would require income tax to be paid from gains from residential property sold within five-years of acquisition. The bill to make the changes is currently waiting its third reading in parliament.
The change will take effect from the date of royal assent (occurs after the third reading) and will only apply to property purchased and sold after that date.
Change to the main home exemption
The current main home exemption will be amended in that a seller will be exempt from paying tax on the gains if it’s the main home being sold within five years and the seller hasn’t within the 5 years relied on the exemption more than twice.
The current provisions provide the start date for the two years (soon to be 5 years) is the date
a) The title is transferred and registered in your name; or
b) Where you are purchasing in a subdivision the date you enter into the agreement.
And the end date is the date you enter into an agreement to sell the property.
If you are concerned the bright-line test may affect you, you should obtain specific tax and/or legal advice. If you have any questions please feel free to contact the team at Preston Russell.