CB 6ADisposal within 10 years: Bright-line test for residential land

1. This section applies if none of sections CB 6 to CB 12 apply.

2. This section does not apply to a person’s disposal of residential land if—

3. the person first acquired an estate or interest in the land before 27 March 2021:
4. the land meets the requirements of section CB 6AB, CB 6AC, CB 6AE, or FB 3A (Residential land), and the transferor first acquired an estate or interest in the land before 27 March 2021.

5. In this section,—

6. 10-year test land means residential land to the extent to which, using a land area test, it is not new build land, and the land’s bright-line disposal date is within 10 years of the earliest of any of the applicable dates (bright-line acquisition dates) described in subsections (3) to (7C):
7. 5-year test land means residential land to the extent to which, using a land area test, it is new build land, and—
   1. the person acquires it no later than 12 months after the land becoming new build land; and
   2. the land’s bright-line disposal date is within 5 years of the earliest of any of the applicable dates (bright-line acquisition dates) described in subsections (3) to (7C); and
   3. at the time of its disposal or at the time the instrument to transfer the land to another person is registered as described in subsection (3)(a), it meets the requirements of paragraph (a), (b), (d), (e), or (f) of the definition of new build land or would have met 1 of those requirements but for the destruction of the relevant place by natural disaster or fire.

8. Subject to quantification under subsection (8), an amount that a person derives from disposing of residential land is income of the person to the extent to which the amount is for residential land that is—

9. 10-year test land:
10. 5-year test land.

11. This section does not apply to an amount that an executor or administrator described in section FC 1(1)(a) (Disposals to which this subpart applies), 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 (see also: section FC 9 (Residential land transferred to executor, administrator, or beneficiary on death of person).

12. In the case where none of subsections (4) to (7C) are applicable, the bright-line acquisition date for the purposes of the definitions of 10-year test land and 5-year test land is—

13. the date on which the instrument to transfer the land to the person was registered—
    1. under the Land Transfer Act 2017; or
    2. under foreign laws of a similar nature to the Land Transfer Act 2017, if the land is outside New Zealand; or
14. the latest date on which the person acquires the estate or interest in the land, if an instrument to transfer the land to the person is not registered on or before the bright-line disposal date.

15. For the purposes of subsection (3), and despite subsection (3)(a), in the case of a transfer of land to a trustee of a trust from a trustee of the trust, the date on which the relevant instrument was registered is treated as—

16. the earliest date on which an instrument to transfer the land to a trustee of the trust was registered under the relevant law referred to in the subsection (the first date), if there has been no intervening transfer to a person who is not a trustee; or
17. the first date following the intervening transfer, if there has been an intervening transfer to a person who is not a trustee.

18. In the case where the residential land results from the person subdividing other land (the undivided land), the bright-line acquisition date for the purposes of the definitions of 10-year test land and 5-year test land is—

19. the date on which the instrument to transfer the undivided land to the person was registered—
    1. under the Land Transfer Act 2017; or
    2. under foreign laws of a similar nature to the Land Transfer Act 2017, if the land is outside New Zealand; or
20. the latest date on which the person acquires the estate or interest in the undivided land, if the land is not registered as described in paragraph (a) at the bright-line date.

21. For the purposes of subsection (4), and despite subsection (4)(a), in the case of a transfer of land to a trustee of a trust from a trustee of the trust, the date on which the relevant instrument was registered is treated as—

22. the earliest date on which an instrument to transfer the undivided land to a trustee of the trust was registered under the relevant law referred to in the subsection (the first undivided date), if there has been no intervening transfer to a person who is not a trustee; or
23. the first undivided date following the intervening transfer, if there has been an intervening transfer to a person who is not a trustee.

24. In the case where the residential land is a freehold estate in residential land, acquired as the owner of a leasehold estate with a perpetual right of renewal, the bright-line acquisition date for the purposes of the definitions of 10-year test land and 5-year test land is the date the leasehold estate was granted.

25. In the case and to the extent to which the residential land is held as a tenant in common in a share equal to all joint owners, converted subsequent to, and to the extent to which it was previously being held as a joint tenant nominally in the same share equal to the same joint owners, the bright-line acquisition date for the purposes of the definitions of 10-year test land and 5-year test land is the same as prior to the conversion.

26. In the case and to the extent to which the residential land is held as a joint tenant nominally in a share equal to all joint owners, converted subsequent to, and to the extent to which it was previously being held as a tenant in common in the same share equal to the same joint owners, the bright-line acquisition date for the purposes of the definitions of 10-year test land and 5-year test land is the same as prior to the conversion.

27. In the case and to the extent to which a person who owns land (pre-existing land) has more land transferred to them (the transfer land) or transfers part of their pre-existing land (also, the transfer land), the instrument of transfer for the transfer land is for the transfer land only and is treated as not being for the pre-existing land, for the purposes of the definition of bright-line acquisition date.

28. In the case where the residential land is acquired as the result of the completion of a land development or subdivision, the bright-line acquisition date for the purposes of the definitions of 10-year test land and 5-year test land is the date the person enters into the agreement under which they acquired the estate or interest upon the completion of the land development or subdivision.

29. For residential land transferred to trustees or settlors of certain family trusts, the bright-line acquisition date for the purposes of the definitions of 10-year test land and 5-year test land is given by section CB 6AB.

30. For residential land transferred to Maori authorities, or similar eligible persons, for certain family trusts, the bright-line acquisition date for the purposes of the definitions of 10-year test land and 5-year test land is given by section CB 6AC.

31. For certain transfers of residential land included in settlement of claim under the Treaty of Waitangi, the bright-line acquisition date for the purposes of the definitions of 10-year test land and 5-year test land is given by section CB 6AE.

32. Despite subsection (1), the amount of income that a person (person A) derives for disposing of 10-year test land or 5-year test land, as the case may be, is reduced by the amount calculated using the following formula:

    $unadjusted\; income\; \times \; (exempted\; non-predominant\; main\; home\; days\; \times \; main\; home\; percentage\; +\; exempted\; predominant\; main\; home\; days)\; /\; total\; days.$

    Where:

33. The items in the formula are defined in subsections (10) to (11D), and subsection (11E) provides an exception.

34. Unadjusted income is person A’s amount of income for disposing of the 10-year test land or 5-year test land under subsection (2), ignoring this formula.

35. Exempted non-predominant main home days is the total number of—

36. days within the land’s bright-line period that the land has been used for a dwelling that was the main home for 1 or more main home persons:
37. days in a period that is equal to or shorter than the exempt main home period limit if, for the period, the land has not been used for a dwelling that was the main home for 1 or more main home persons, and—
    1. the start of the period adjoins either a day described in paragraph (a) or the start of the land’s bright-line period; and
    2. the end of the period adjoins either a day described in paragraph (a) or the end of the land’s bright-line period; but
38. does not include any exempted predominant main home days.

39. Main home percentage is the percentage area of the land that, during the exempted non-predominant main home days has been used as a main home.

40. Exempted predominant main home days is the total number of exempted predominant main home days under section CB 16A.

41. Total days is the total number of days in the land’s bright-line period.

42. Subsection (8) does not apply if person A is described in section CB 16A(3).

43. For the purposes of calculating a person’s net income in relation to the disposal of residential land for which they derive an amount of income under this section, sections FC 9B, FC 9C, and FC 9D (which relate to residential land) provide disposal and acquisition amounts for transactions that subsections (7) to (7C) of this section apply to.