Government Changes and Housing - Brightline Test

On the morning of 23 March 2021, the Government announced an extension to the Brightline test to ten years, along with a raft of other changes in response to the recent rise in house prices we have seen. Other changes include removing the ability to write off interest as a tax expense on residential lending and changes to the cap for the “Home Start Grant”. All these changes come with some exceptions, some of which we will elaborate on below, but it is important to seek advice from your tax advisor and accountant on these issues as well. 

The Brightline Test 

The “Brightline test”, was first introduced in October 2015 for the purpose of curbing short-term housing “speculation”. The test stated that if you purchased and sold a home that was not your main home, within a two-year period, the gain on the property would be deemed income and thus, a taxable earning. In March 2018, the test was extended to cover a five-year period. The latest change will extend the test to apply to cover a ten-year period. The exceptions to this being the main home, and new builds, which are to continue to have a five-year test. 

The definition of the “main home” exemption is also amended by the changes. A property is currently your main home and exempt from the Brightline test is you live in it for more than 50% of the period you own it, generally speaking. The change will mean that the exemption does not apply for periods of 12 months or more that an owner does not occupy the house. As such, the Brightline test will make tax payable on the gain for this period.  

The new legislation will come into force on 1 October 2021; however, it will retrospectively apply to properties purchased after 27 March 2021. A property is “acquired” generally when they have a binding agreement in place. If you are planning to nominate another entity to purchase the property under and existing agreement, this will now need to be carefully considered as it may mean that the purchase falls under the ten-year test. Alternatively, this will need to be done before the 27 March 2021 to have the five-year test apply. 

Interest Tax Deductions 

Included in the changes is the removal of the ability to use interest paid on residential lending as an income deduction for tax purposes. This will affect all new lending on residential properties from 27 March 2021.  

For lending on residential properties acquired on or after 27 March 2021, or new lending to maintain or improve residential property on or after that date, interest will not be able to be deducted from income for tax purposes. All lending on residential properties put in place before this date will be able to be deducted for a short period, but this ability will be phased out over a four-year period. From 1 April 2025 all interest from residential property lending will no longer have any tax deductibility. 

HomeStart Grant 

We previously published an article series on being a first home buyer, written by Isaac Whatnall. In the article published on 4 March 2020 he discusses the HomeStart Grant.[1] The Government has raised the income caps for the Grant, as well as the regional price caps to be applicable for the Grant. The income cap has been raised to $95,000.00 p.a. for an individual and $150,000.00 for a couple. The house price caps have been changed by region and these can be found here. 

Conclusion 

Every individual, partner, trustee or director of a company who owns or is wanting to own property should take notice of these changes. If you have any questions about their implications for you, the commercial team at DTI is ready to assist you. We also note we have had some general discussions about tax in this article, it is important that you also speak to a tax advisor or accountant about the changes as well. 

Our specialist team at DTI Lawyers can assist you in relation to all aspects of property, and can be contacted on 07 282 0174.