John and Pamela decide to down size, and sell their Taylor Street home with a long settlement to give them time to find a new home. They find a lovely new home on Samuel Street a few weeks later, but the vendor wants a quick settlement. John and Pamela talk to their bank and are able to arrange bridging finance to enable them to purchase it immediately. They sign the agreement to purchase the Samuel Street home on 5 October 2015, they settle on 31 October, and it is to sit empty until they move out of their Taylor Street home in March 2016. In the meantime, another home in River Road that John and Pamela like even better comes on to the market, and at the same time they receive an offer for the Samuel Street home for $50,000 more than they paid for it. They accept that offer and then sign up an agreement to purchase the River Road property with settlement in March 2016. John and Pamela will be caught by the bright-line test and will be liable to pay tax on the price increase of the Samuel Street property. Although they bought the Samuel Street property with the intention that it would be their main home, you can only have one main home at any time. The sale of Samuel Street will not fall within the main home exemption.
New residential land tax rules came into effect on 1 October 2015. For more information on these tax rules click here.
If you have any concerns about buying or selling residential property, please contact us for good legal advice that will give you peace of mind.