Taxation (Bright-line Test for Residential Land) Act 2015

1: Title
This Act is the Taxation (Bright-line Test for Residential Land) Act 2015
2: Commencement
This Act comes into force on the day on which this Act receives the Royal assent, except Part 1
1: Amendments to Income Tax Act 2007
3: Income Tax Act 2007
This Part amends the Income Tax Act 2007 2015-11-16 Income Tax Act 2007
4: New section CB 6A inserted (Disposal within 2 years: bright-line test for residential land)
1: Before section CB 6
CB 6A: Disposal within 2 years: bright-line test for residential land
Disposal within 2 years
1: An amount that a person derives from disposing of residential land is income of the person, if the bright-line date for the residential land is within 2 years of—
a: the date on which the instrument to transfer the land to the person was registered—
i: under the Land Transfer Act 1952; or
ii: under foreign laws of a similar nature to the Land Transfer Act 1952, if the land is outside New Zealand; or
b: their date of acquisition of the land, if an instrument to transfer the land to the person is not registered on or before the bright-line date. Subdivision
2: Despite subsection (1) undivided land
a: the date on which the instrument to transfer the undivided land to the person was registered—
i: under the Land Transfer Act 1952; or
ii: under foreign laws of a similar nature to the Land Transfer Act 1952, if the land is outside New Zealand; or
b: their date of acquisition of the undivided land, if the land is not registered as described in paragraph (a) Leases with perpetual right of renewal
3: Despite subsection (1) Contingent interest
4: Despite subsection (1) Exception: disposal of land by executor, administrator, or beneficiary
5: This section does not apply to an amount that an executor or administrator described in section FC 1(1)﻿(a) (What this subpart does), or a beneficiary described in section FC 1(1)﻿(b), derives from disposing of residential land that was transferred to them on the death of a person. Relationship with subject matter
6: This section applies if none of sections CB 6 to CB 12 apply. Some definitions
7: In this section and section CB 16A bright-line date
a: the earliest of—
i: the date that the person enters into an agreement for the disposal:
ii: the date on which the person makes a gift of the residential land:
iii: the date on which the person’s residential land is compulsorily acquired under any Act by the Crown, a local authority, or a public authority:
iv: if there is a mortgage secured on the residential land, the date on which the land is disposed of by or for the mortgagee as a result of the mortgagor’s defaulting; or
b: if none of paragraph (a)﻿(i) to (iv) date of acquisition amount, bright-line date, date of acquisition, dispose, estate, income, interest, land, mortgage, person, residential land, year
2: Subsection (1)
5: Section CB 13 amended (Disposal: amount from major development or division and not already in income)
1: In section CB 13(1)﻿(a) sections CB 6 sections CB 6A
2: Subsection (1)
6: Section CB 14 amended (Disposal: amount from land affected by change and not already in income)
1: In section CB 14(1)﻿(a) sections CB 6 sections CB 6A
2: Subsection (1)
7: Section CB 15B amended (When land acquired)
1: In section CB 15B(1) For the purposes of this subpart For the purposes of this subpart except section CB 6A
2: Subsection (1)
8: New section CB 16A inserted (Main home exclusion for disposal within 2 years)
1: Before section CB 16
CB 16A: Main home exclusion for disposal within 2 years
Main home exclusion
1: Section CB 6A
a: the person; or
b: a beneficiary of a trust, if the person is a trustee of the trust and—
i: a principal settlor of the trust does not have a main home; or
ii: if a principal settlor of the trust does have a main home, it is that main home which the person is disposing of. When this section does not apply
2: The exclusion in subsection (1)
a: the exclusion has been used by the person 2 or more times within the 2 years immediately preceding the bright-line date for the residential land:
b: the person has engaged in a regular pattern of acquiring and disposing of residential land. A definition
3: In this section, principal settlor beneficiary, bright-line date, dispose, dwelling, land, main home, person, principal settlor, residential land, settlement, settlor, trustee, year
2: Subsection (1)
9: Section CB 23B amended (Land partially sold or sold with other land)
1: In section CB 23B CB 6 CB 6A
2: Subsection (1)
10: New sections DB 18A and DB 18AB inserted
1: Before section DB 18
DB 18A: Ring-fenced allocations: disposal of residential land within 2 years
When this section applies
1: This section applies to an amount of a person’s deductions ( bright-line deductions section CB 6A Basis for allocation of deductions: formula
2: The amount of bright-line deductions allocated to an income year, including an amount that has been carried forward and allocated under subsection (4) bright-line income + land net income. Definition of items in formula
3: In the formula,—
a: bright-line income section CB 6A
b: land net income Excess allocations: carried forward and reinstated next year
4: Any excess deductions not allocated to the income year because of subsection (2)
a: deductions under section DB 23 that relate to residential land for which the person derives income solely under section CB 6A
b: allocated to the next income year. Restriction on reinstating excess allocations: continuity for companies
5: Despite subsection (3) deduction, dispose, income, income year, land, loss balance, net income, residential land, tax loss component
DB 18AB: Deduction cap: disposal of residential land within 2 years to associated persons
When this section applies
1: This section applies to a person ( person A
a: person A derives income solely under section CB 6A (Disposal within 2 years: bright-line test for residential land) from disposing of residential land to an associated person; and
b: person A has deductions for expenditure or loss in relation to the disposal of the land ( residential land deductions Deduction cap for person A and transfer to associated person
2: The total residential land deductions that person A is allowed are no more than the amount of income they derive under section CB 6A from the disposal of the land. Deductions not allowed to person A under this section are treated as expenditure that the associated person has in relation to acquiring the land. associated person, deduction, dispose, income, income year, land, person, residential land
2: Subsection (1)
11: Section DB 29 amended (Apportionment when land acquired with other property)
1: In section DB 29 CB 6 CB 6A
2: Subsection (1)
12: New section FB 3A inserted (Residential land)
1: Before section FB 3
FB 3A: Residential land
When this section applies
1: This section applies for the purposes of section CB 6A Transfer at cost
2: The transfer is treated as a disposal and acquisition for an amount that equals the total cost of the residential land to the transferor at the date of transfer. Date of acquisition
3: The transferee is treated as having acquired property in the residential land on the relevant date, for the transferor’s acquisition, in section CB 6A(1)﻿(a) or (b) date of transfer, dispose, residential land, settlement of relationship property
2: Subsection (1)
13: Section FC 3 amended (Property transferred to spouse, civil union partner, or de facto partner)
1: After section FC 3(2) Relationship with subject matter
3: Section FC 9
2: In section FC 3 residential land
3: Subsection (1)
14: Section FC 4 amended (Property transferred to charities or to close relatives and others)
1: After section FC 4(2) Relationship with subject matter
3: Section FC 9
2: In section FC 4 residential land
3: Subsection (1)
15: New section FC 9 inserted (Residential land transferred to executor, administrator, or beneficiary on death of person)
1: After section FC 8
FC 9: Residential land transferred to executor, administrator, or beneficiary on death of person
What this section applies to
1: This section applies in the circumstances described in section FC 1(1)﻿(a) or (b) when residential land is transferred on a person’s death and section FC 5 does not apply. Residential land
2: Section CB 6A Cost of residential land
3: If the residential land is transferred to a person who disposes of it, and the person derives income, the cost of the land to the person is—
a: the cost of the land incurred by the deceased person; and
b: all other expenditure incurred by the person, the deceased person, or the administrator or executor of the deceased person, as applicable, for which no deduction has been allowed. deduction, dispose, income, land, person, residential land
2: Subsection (1)
16: Section FO 10 amended (When property passes on resident’s restricted amalgamation)
1: In section FO 10(6) the 10-year rule in sections CB 9 to CB 11 and CB 14 the 2-year bright-line test or the 10-year rule in any of sections CB 6A
2: Subsection (1)
17: Section FO 17 amended (Land)
Replace section FO 17(2) and (3) Disposal at market value
2: The amalgamating company is treated as having disposed of the land to the amalgamated company at the market value of the land at the date of the amalgamation if—
a: the land is not revenue account property of the amalgamating company, and the disposal of the land would give rise to income for the amalgamated company under any of sections CB 6A
b: the land is revenue account property of the amalgamating company but not merely because of the 2-year bright-line test or the 10-year rule in any of sections CB 6A CB 6A Disposal of land within 2-year bright-line test or 10-year rule
3: If the land is, or may be, revenue account property of the amalgamating company because of the 2-year bright-line test or the 10-year rule in any of sections CB 6A CB 6A
18: New heading and new sections GB 52 and GB 53 inserted
After section GB 51 Arrangements involving residential land
GB 52: Arrangements involving residential land: companies’ shares
When this section applies
1: This section applies when—
a: a company owns residential land directly or indirectly for which the relevant date in sections CB 6A(1)﻿(a) or (b) paragraph (c) company residential land
b: residential land owned directly or indirectly by the company makes up 50% or more, by market value, of the assets of the company; and
c: 50% or more of the shares in the company, by market value, are disposed of within a 12-month period, with a purpose or effect of defeating the intent and application of section CB 6A Disposal at cost, reacquisition at market
2: The company is treated as disposing of the relevant shareholder portion of company residential land to the relevant shareholder for an amount of consideration equal to the total cost to the company of the portion, and the shareholder is treated as acquiring the portion for that total cost and then disposing of it, back to the company, for an amount of consideration equal to the market value of the portion. The company is treated as reacquiring the portion for the market value. A definition
3: In this section, shareholder portion company, dispose, residential land, share, shareholder
GB 53: Arrangements involving residential land: trusts
When this section applies
1: This section applies when—
a: the trustees of a trust own residential land directly or indirectly ( trust residential land
b: trust residential land makes up 50% or more, by market value, of the assets of the trust; and
c: the trust’s trust deed changes, a decision-maker under the trust deed changes, or an arrangement under the trust changes, with a purpose or effect of defeating the intent and application of section CB 6A Market value disposal
2: The trustees are treated as disposing of the trust residential land affected by a change described in subsection (1)﻿(c) amount, arrangement, dispose, land, residential land, trustee
19: Section YA 1 amended (Definitions)
1: This section amends section YA 1
2: Insert, in appropriate alphabetical order: bright-line date section CB 6A section CB 16A
3: Insert, in appropriate alphabetical order: date of acquisition section CB 6A section CB 16A
4: In the definition of dispose CB 6 CB 6A
5: In the definition of dwelling
a: in paragraph (b), replace any of the following any of the following, in whole or part
b: after paragraph (b), insert:
c: despite paragraph (b)﻿(iii) and (v), for the purposes of section CB 16A residential land
i: includes a serviced apartment described in paragraph (b)﻿(iii):
ii: does not include, in whole or part, a rest home or retirement village
6: Replace the definition of estate estate interest estate or interest in land estate in land interest in land
a: mean an estate or interest in the land, whether legal or equitable, and whether vested or contingent, in possession, reversion, or remainder; and
b: include a right, whether direct or through a trustee or otherwise, to—
i: the possession of the land (for example: a licence to occupy, as that term is defined in section 121A(1) of the Land Transfer Act 1952):
ii: the receipt of the rents or profits from the land:
iii: the proceeds of the disposal of the land; and
c: do not include a mortgage
7: Insert, in appropriate alphabetical order: farmland
a: is being worked in the farming or agricultural business of the land’s owner:
b: because of its area and nature, is capable of being worked as a farming or agricultural business
8: In the definition of interest
d: in relation to land, interest in land estate or interest in land estate
9: Insert, in appropriate alphabetical order: main home
a: that is mainly used as a residence by the person (a home
b: with which the person has the greatest connection, if they have more than 1 home
10: Insert, in appropriate alphabetical order: principal settlor section CB 16A
11: Insert, in appropriate alphabetical order: residential land
a: means—
i: land that has a dwelling on it:
ii: land for which the owner has an arrangement that relates to erecting a dwelling:
iii: bare land that may be used for erecting a dwelling under rules in the relevant operative district plan; but
b: does not include land that is—
i: used predominantly as business premises:
ii: farmland
12: In the definition of settlement
a: in paragraph (b), replace the settlement the settlement; but
b: after paragraph (b), insert:
c: in the definition of principal settlor section CB 16A(3)
i: a beneficiary:
ii: a trustee:
iii: a person with power of appointment or removal of trustees:
iv: a person with a contingent interest in the trust property, in the case that the trust fails:
v: a decision-maker under the trust
13: Insert, in appropriate alphabetical order: shareholder portion section GB 52
14: In the definition of trading stock CB 6 CB 6A
15: In the definition of trust rules
h: sections 43B, 59, and 93B of the Tax Administration Act 1994
2: Amendments to Tax Administration Act 1994
2015-11-16 Tax Administration Act 1994
20: Section 3 of the Tax Administration Act 1994 amended (Interpretation)
In section 3(1) professional trustee section 43B
21: New section 43B of the Tax Administration Act 1994 inserted (Non-active trusts may be excused from filing returns)
After section 43A
43B: Non-active trusts may be excused from filing returns
1: A trustee of a trust is not required to furnish a return of income for the trust for a tax year if—
a: throughout that tax year; the trust is—
i: a non-active trust; and
ii: a complying trust as described in section HC 10 of the Income Tax Act 2007; and
b: a trustee of the trust has made and furnished to the Commissioner, in a form approved by the Commissioner,—
i: a declaration that the trust is a non-active trust, and that it will notify the Commissioner if it stops being a non-active trust; and
ii: a statement of such other matters as the Commissioner may require; and
c: the trust has not since the making of the declaration stopped being a non-active trust.
2: For the purposes of this section, a trust is a non-active trust for a tax year if, throughout that tax year, the trustee of the trust—
a: has not derived or been deemed to have derived any income; and
b: has no deductions; and
c: has not been a party to or perpetuated or continued with any transactions with assets of the trust which, during the tax year,—
i: give rise to income in any person’s hands; or
ii: give rise to fringe benefits to any employee or to any former employee.
3: In determining whether a trust complies with the requirements of subsection (2)
a: reasonable fees paid to professional trustees to administer the trust; or
b: bank charges or other minimal administration costs totalling not more than $200 in the tax year; or
c: interest earned on trust assets in any bank account during the tax year, to the extent to which the total interest does not exceed $200; or
d: insurance, rates, and other expenditure incidental to the occupation of a dwelling owned by the trust and incurred by the beneficiaries of the trust.
4: Where at any time any paragraph of subsection (2)
5: Despite subsection (1)