Bright-line test applies to vacant land

Fred and Peggy sign up to buy a vacant section in a new Auckland subdivision. They pay $380,000 and they sign the agreement to purchase on 20 October 2015. They settle on the land a few months later. They start planning the building of their dream home. Six months later, the demand for sections in that popular subdivision has sent the prices skyrocketing. Fred and Peggy decide to sell their section to take advantage of the capital gain, and to buy another section in a different area. They think they could clear $75,000 by selling the land. They are surprised to learn that the bright-line test applies to them. Their vacant section falls within the definition of residential land because it is “bare land that because of its area and nature is capable of having a dwelling erected on it”. If Fred and Peggy sell their property within two years of the date of registration of the transfer of the land to them, they must 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.