On 30 March 2022, the Taxation (Annual Rates for 2021-22, GST and Remedial Matters) Act 2022 received Royal assent. Its passing into law brings with it the extension of the residential bright line period from 5 to 10 years and denial of interest deductibility for residential investment properties. The legislation itself is complex and difficult to interpret because it has been written with numerous potential fact scenarios in mind.
In summary:
However, if a property meets the definition of "new build land":
As a result, the definition of what comprises "new build land" is important. There were additions to the definition of "new build land" from when the bill was initially introduced. In its final form, "new build land" includes:
As alluded to above, the rules become more complex in non-standard situations. For example, if a person completes a subdivision, their acquisition date for the resulting land dates back to when the title for the undivided land was registered to them. But if a person acquires land as a result of a subdivision completed by another person, their acquisition date is when they entered into the agreement to acquire the subdivided land.
If subdivided land has both an 'old' house and a new build constructed on it, then the portion of the land on which the new build is constructed may qualify as "new build land", while the balance would not. This type of scenario can then give rise to apportionment issues in relation to interest expenditure and application of the 5 year versus 10 year bright line periods.
Care needs to be taken when applying the rules to ensure the relevant provisions are first identified and then correctly interpreted.
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