Changes to bright-line rules Along with changes to the interest deductibility rules, legislation has been passed which repeals the current bright-line tests, replacing them with a new (or old) 2-year test. There were previously three separate bright-line tests which applied to the sale of residential land:
- Land acquired on or after 27 March 2021 that is not a ‘new build’: 10-year test.
- Land acquired on or after 27 March 2021 that is a ‘new build’: 5-year test.
- Land acquired on or after 29 March 2018 but before 27 March 2021: 5-year test.
The changes repeal all of these tests and replaces them with a 2-year test applying to all residential land equally (no longer a different treatment between a new build and a non-new build). It applies to disposals that occur after 1 July 2024, i.e. a property purchased before 1 July 2022 and sold after 1 July 2024 will not be subject to the bright-line test. The main home exclusion that required an apportionment between the time and area that the property was used as a main home is also repealed. Under the two-year regime, to qualify for the main home exemption the home must be predominately (more than 50%) used as such, both from a time and land area perspective.
Rollover relief rules are also extended to capture more types of transfers, allowing the transferee to obtain the original purchase date and cost of the transferor. For example, transfers can now be made between relatives within two degrees of blood relationship without triggering a bright-line disposal. Each of these changes revert the rules closer to their original intended purpose, which was to bring gains made by property speculators into the tax net.