Brightline Test Extended

by Shawn O’Grady
4 Minute(s) to read

Brightline Test Extended

We wanted to alert you to the fact that the government has now introduced legislation to parliament that will make good their policy of extending the existing 2 year bright line test to 5 years.

The bright line test will impose income tax on any gain made from disposal of a residential property that is acquired and sold within five years, regardless of the reason it was purchased and regardless of whether the owner is a property developer or dealer.

There are exemptions for a taxpayers primary place of residence but second homes, and residential rental properties are all included. Even vacant sections are included as residential land is defined as including any land capable of taking a residential building. Intention to live in the house won’t be enough to be exempt either, you have to actually have lived there.

What we particularly want you to know now though is that the change from 2 years to 5 years will only take effect from the date where the bill passes into law, this is likely to be late March.

Whether a property acquisition will be on the 2 year side of the law or the 5 year side of the law will be determined by when you “ first acquired an interest in the land”. This first interest is gained when you have a sale and purchase agreement signed so any agreement entered into to acquire residential land before the new legislation receives its Royal ascent will be under the existing 2 year bright line test.

For most people 2 years was manageable but a lot can happen in a families circumstances over a 5 year period so we foresee many more situations where residential properties will be caught by the bright line test once that test spans five years of ownership. You will definitely need to keep the acquisition date under a fridge magnet to beat this one.

So if you have been toying with the idea of another investment property or humming and haring about the right time to help your kids into a property or wondering whether it’s worth putting an offer in on that bach now that summer is ending, or land banking that section next door,  it just might be worth considering getting it on paper now before this law passes.

There is still a window of opportunity to beat the change but time is of the essence !

Oh and while we are at it, we haven’t heard anything yet on the introduction of property loss ring fencing but that was a stated pre-election labour policy so we will keep you posted on the detail when that next bundle of joy appears, pun intended !

 

Tradies and Cash Jobs

It’s happened, Inland Revenue warned tradies last year that cash jobs might be easier to detect than they might think. Now two tradesmen have been jailed for evading tax.

Inland Revenue took out radio and billboard advertisements late last year to warn tradesmen that cash jobs invariably left a trail and that it could uncover hidden payments. Someone receiving cash payments might come to the department's attention in a few ways:

  • They might be dobbed in.
  • Someone they traded with might disclose the transaction in their own tax returns. 
  • An audit of one person might indicate another business or contractor needed to be audited.

Cash jobs leave a trail. You have to spend it some time. So whether it goes on travel, living expenses, a new skill saw, gambling, the mortgage or anything else, they can find it."

Many people won't be aware but the Tax Administration Act gives Inland Revenue the power to access a wide variety of personal information,

What's the risk? If you're caught you may have to pay a penalty of up to 150% of the tax owing. If you're a habitual offender you could be fined up to $5000 or five years in jail. If you choose to come clean, your penalties can be reduced.

 

Shareholder-employee Meals

What are the deductibility rules around meals to shareholder employees? 

Provided that you (and your staff)  meet the following requirements:

  • Work 2 hours over your normal hours of work per that day.
  • Have an employment contract, that also covers payment of overtime hours and sustenance allowances
  • the employer has an established policy or practice of paying for overtime meals.

The amount paid is the actual cost of the meal, with documentation required for amounts over $20 per meal.

Note however that separate rules apply for the deductibility of entertainment expenditure, so you should keep careful records of the various types of expenditure incurred.



HAVE WE GOT YOU THINKING?

 

Give us a call on (04) 563 6965 or email: dennis@taxman.co.nz or shawn@taxman.co.nz

Keep an eye out for April’s article!

 

TAX DATES TO REMEMBER

  • 20th March. 2018 - monthly employers PAYE payment…
  • 28th March. 2018 - Bi monthly GST Return for Jan/Feb 2018…
  • 31st March. 2018 - End of the 2018 Financial Year for those taxpayers who have a March balance date…