Bonnie and Clyde purchase a tenanted apartment as an investment property. They sign up the agreement on 20 October 2015, paying $300,000, and settle the purchase on 20 November 2015. Seven months later they are offered $350,000 for the apartment and decide it is a great opportunity to make a quick capital gain. They sign an agreement to sell the apartment on 30 June 2016. Bonnie and Clyde then realise that they will be caught by the “bright-line test” as they have sold a residential property within 2 years of purchasing it (calculated from the date of registration of the transfer on purchase, to the date of the agreement to sell). As it was an investment property it does not fall within the “main home” exemption, and now they are liable to pay tax on the price increase.
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.