Brightline!
Q. Does the sale of a family home from myself to the Trust trigger a Brightline issue?
There are certain rollover measures from transactions within the Brightline rules where the transferors are beneficiaries and at least one is a principal settlor. There have been recent changes and interpretations here, with a recent update on the rollover for trusts by principal settlors.
This means that the Trust will (from 1 April 2022) inherit the original purchase date and the transferee (Trust) will pick up the same Brightline period, so there is no need to worry for the change of periods from 5 years to 10 years. This applies to transfers with a cost attached at either original cost, lower or higher than original value.
Q. So then, does the sale of my family home from my Trust to myself trigger a Brightline issue?
This has the same rules essentially as above however, the settlor does not need to be an original settlor. The rules previously applied to property that was originally transferred in by the principal settlor and has been changed to include property that has been acquired by the Trust provided the transferee was a principal settlor at the time the property was acquired.
Q. A home was purchased on the 24 June 2021, from the period of acquisition to move in, which was 1 June 2022, the property was under renovation. Now there is a change in circumstances and the property will be sold on the 20 September 2022. Will this trigger a Brightline issue ?
Under the changes in the rules, the main home exemption will apply. The reason here is that although the property was only occupied for 112 days, the period that it was unoccupied was 341 days and therefore less than the 365 days and becomes classified as predominant main home days.
This changes from what we previously knew which was if you didn't occupy it for ‘most’ of the time, or more than 50% of the time, you fell within Brightline.
So you can see that small tweaks to the rules are removing some of those unintended consequences.
Scenario: 2 houses are owned, one in Tauranga which is a main family home and a city centre apartment in Wellington. Both of these were acquired 25 April 2022. 36 months down the track there has been a relationship breakdown, he will take the Tauranga house and she will take the Wellington apartment as part of the settlement. This transaction itself does not trigger a Brightline issue as rollover relief measures apply, meaning that the acquisition date will be the original date for Brightline for the individual parties.
However, 2 months down the track it is decided that the Wellington apartment will be sold. This will trigger Brightline issues as the property does not meet the requirements of the main home exemption for the period where it was not used as the Main House. For any gain, the tax will be calculated on an apportion basis based on the owned period (1095 days) and Main Home period (62 days), so 1003/1095 days.
The Tauranga property will be OK if that was also sold as it was the Main Home when the relationship was intact and then the Main Home of his after the relationship breakdown.
