Trust update: ird numbers and ensuring you don’t get burnt by the “bright-line”
Trusts must now have their own IRD numbers and tax-avoidance measures have been introduced to target those regularly turning over property.
Trusts to have IRD numbers
To allow IRD to collect more information about people who are dealing in land, trusts must get their own New Zealand IRD number when dealing with property.
The “bright-line” test
The “bright-line” test came into play on 1 October 2015. Since then, if you sell a residential property within two years of purchase you must pay income tax on any gains, unless you come within one of the exceptions.
The primary exception is where the property is the ‘main home’. For trusts to have the protection of this exception:
- The property must have been the main home of a beneficiary of the trust; and
- The person who put the most into the trust (principal settlor), must not own a different main home.
An example of this is Bernard who has two properties, a family home which he lives in, and a student flat which his son lives in while studying. Bernard puts the student flat into a trust and makes his son a discretionary beneficiary of the trust. The trust cannot use the main home exception because the principal settlor of the trust (Bernard) has another main home.
The requirement that the property is occupied mainly as a residence is the key part of the exception, ensuring that properties used mainly for investment or other purposes must pay tax.
Where to from here?
If you are a Trustee of a Trust and the Trust is anticipating entering into a property transaction in the near future it is important that you make sure you can comply with these new requirements.
If you are uncertain about how this might affect you, please get in touch. We’d be happy to help you out.
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