by Miriam Bell
More controversially, today is also the start date of the Government’s new bright line test.
The bright line test requires income tax to be paid on any gains from residential property purchased and sold within two years – with some exceptions.*
It is this measure which has become the focus of some heated discussion recently.
Labour Party finance spokesperson Grant Robertson said the bright line test will have little impact on house prices and speculation.
“Tax and legal experts have slammed it and even Treasury has warned that the two year limit will be ineffective.”
Robertson said it is likely the bright line test will be easily avoided by the very speculators it is supposed to curtail and will instead hurt homeowners who have been forced to sell within two years.
Green Party finance spokesperson Julie Anne Genter was more positive, saying the bright line test would help to curb some property speculation.
She advocated for a five year bright line test on the capital gains from property instead.
At the recent Select Committee consultation on the bright line test, both Chartered Accountants Australia and New Zealand and the New Zealand Law Society spoke out against it.
Both groups were concerned it would be ordinary people forced to sell their homes, due to changed personal circumstances, who would be caught out by the test rather than property speculators.
The NZLS also said the bright line test was likely to be ineffective in achieving its stated objective of enforcing existing land gain taxation provision.
University of Auckland business school tax lecturer Mark Keating told media the bright line test could be easily evaded by speculations who could simply wait out the two year period by a day.
However, tax expert Stephen Tsang disputed this.
He said the bright line test supplements existing property tax rules – notably the “intent to sell” provision.
“For this reason, it will not be enough to just ‘survive’ the bright line test, people will also have to satisfy the existing ‘intent to sell’ tax provisions.”
This means that any property owner who sells after the two year period is up will still have to prove they didn’t buy the property with the “intent to sell”.
“The bright line test is a new tax provision which tucks in under the relevant existing tax provisions.”
* Exceptions include the sale of an owner’s main home, inherited property, or the transfer of property in a relationship settlement.
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