Is it a new build?

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:

- The 5 year bright line period is extended to 10 years for properties purchased after 27 March 2021.

- Interest deductions will not be allowed for properties purchased after 27 March 2021.

- For properties owned prior to 27 March 2021, interest deductions will be phased out over time from 1 October 2021.

However, if a property meets the definition of “new build land” then:

- the bright line period remains at 5 years for the purchaser as long as they acquired it within 12 months of it meeting the definition of “new build land”, and

- interest will remain deductible for 20 years after the date the code compliance certificate was issued, including for subsequent purchasers of the land.

As a result, the definition of what comprises “new build land” is important.

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.

Care needs to be taken when applying the rules to ensure the relevant provisions are first identified and then correctly interpreted. Please contact our team if you need help deciphering these new rules.