The Bright-line Test taxes a gain on residential land when it is bought and sold within a five or ten-year period. This is unless the owner lives on the land and is eligible for the Main Home Exclusion.
For residential land acquired between 29 March 2018 and 26 March 2021, a person would only be eligible for the Main Home Exclusion if they physically lived on the land for at least 50% of the ownership period. This has unfairly resulted in tax for landowners who didn’t meet the 50% requirement due to a long build process and having to sell after moving in due to unforeseen circumstances.
When the Bright-line Test was updated to 10 years from 27 March 2021, the related Main Home Exclusion was also updated to treat a period when a person is waiting on a build as a period in which they lived there. However, there were no changes to the previous five-year legislation until a tax bill was introduced to Parliament during May 2023.
When enacted, this bill should allow someone to seek a reassessment of their income tax return if they could not rely on the Main Home Exclusion because they were waiting for their home to be built. There are some specific criteria to this. However, if a person is eligible, their return could be updated to treat the sale as non-taxable and result in a refund of the tax paid.
If you think that this may apply to you, please get in touch to see if we can help you seek a refund after the bill has been enacted. Drop Alex an email or give him a call on 022 525 0115.
Alex Cull, Tax Partner
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