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Income Tax Act 2007

Recharacterisation of certain transactions - Rollover relief from the bright-line test

FD 1: Relief from bright-line test for transfers between associated persons

You could also call this:

“Special tax rules for transferring residential land to close associates”

If you transfer residential land to someone you’re closely connected with, there are special rules that might apply. These rules are about the bright-line test, which is a way of deciding if you need to pay tax when you sell residential land.

The rules apply when you transfer land to someone you’ve been closely connected with for at least two years. This could be a family member or a trust where all the beneficiaries are closely connected to you. It can also apply to transfers to certain non-profit organisations.

If these rules apply, it’s treated as if you sold the land for the same amount you originally paid for it. The person you transfer it to is considered to have owned it since you first bought it.

If you used the property as your main home, the new owner can count that time too. This might help them avoid paying tax if they sell it soon after.

You can only use these rules once every two years for the same piece of land.

These rules are part of the bright-line test and tax deduction rules in New Zealand’s tax law.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS974731.

Topics:
Money and consumer rights > Taxes
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FD 2: Relief from bright-line test for Māori rollover trusts, or

“Exemptions for property transfers involving Māori trusts under the bright-line test”

Part F Recharacterisation of certain transactions
Rollover relief from the bright-line test

FD 1Relief from bright-line test for transfers between associated persons

  1. This section applies for the purposes of sections CB 6A and CB 16A (which relate to the bright-line test for residential land) and Part D (Deductions) when residential land is transferred within the bright-line period—

  2. between persons associated under any of sections YB 2 to YB 13 at the date of transfer and for at least 2 years before that date; or
    1. to a trustee of a trust in which all beneficiaries, other than the transferor in their capacity as a beneficiary, are—
      1. associated with the transferor at the date of transfer and for at least 2 years before that date, except for beneficiaries aged less than 2 years and persons who have become associated due to marriage or adoption who must be associated with the transferor since birth, marriage, or adoption, as applicable; or
        1. an association, club, institution, society, organisation, or trust not carried on for the private profit of any person whose funds are applied wholly or principally to any civic, community, charitable, philanthropic, religious, benevolent, or cultural purpose, whether in New Zealand or elsewhere.

        2. The transfer is treated as a disposal and acquisition, at the date of transfer, for an amount that equals the cost of the residential land to the transferor.

        3. The transferee’s bright-line start date for the land is the transferor’s bright-line start date.

        4. For the purposes of determining whether section CB 16A (Main home exclusion for disposal within 2 years) applies, the transferor’s use of the property is attributed to the transferee (for example, if the transferor used the property as a main home for 1 year, this is attributed to the transferee).

        5. This section does not apply to a transfer of residential land if the section has already been applied to a transfer (the first transfer) of the residential land and 2 years have not passed from the date of the first transfer.

        Notes
        • Section FD 1: inserted, on , by section 77(1) (and see section 77(2) for application) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).