Roll-Over Relief – New Brightline Test
An extension to the Rollover relief under the brightline test has been made to provide relief to certain transfers of land to or from family trusts, look through companies, partnerships and within wholly owned, consolidated groups of companies, certain transfers of Maori Land and settlements under the Treaty of Waitangi. Additional amendments ensure that certain transfers that effect co-ownership do not reset the start of the brightline period in certain cases.
One thing to be mindful of is that full rollover relief is only provided when a disposal of residential land is made at the transferor’s acquisition cost or less. Partial rollover relief is available where the disposal is made for more than the transferor’s cost of the land.
Rollover relief applies to transfers of residential land to a Family Trust. Rollover relief is available for a transfer from a Family Trust only insofar as the land is transferred back to the original settlor. If the land was transferred to the Trust by more than one settlor, the land needs to be transferred back to the settlors, and their proportionate interest in the land must be the same as it was at the time of the original settlement on the Trust.
The rollover relief will also be available in cases where the land was transferred to a Trust by a person in one capacity and then transferred back to the same person in a different capacity. For example, where Mum and Dad settle the property on a Family Trust and later receive the property back as equal shareholders of an LTC.
Rollover relief is available to the land transferred by the Trust to its original settlor and then settled onto a new Trust. The Government has acknowledged that consequential rollover relief should also be available for a pure resettlement transaction where the trustee of a trust transfers the land to a new Trust, where the principal settlor of the Old Trust is the principal Settlor of the New Trust and the requirements in relation to beneficiaries of Rollover Trust are met. Whilst this is not expressly provided in the current legislation, such rollover relief should be introduced in the next available tax bill.
Transfer of land to beneficiaries will not qualify for rollover relief.
Rollover relief is also available to transfers of residential land to or from LTC’s and partnerships. The rollover relief will apply where the transfers of land results in the same proportional ownership interest in the land. As the transferee steps into the shoes of the transferor, the brightline acquisition date for the transferee is that of the transferor.
As mentioned earlier in case of Trusts, the full rollover relief only applies where the transfer is made for consideration that is less or equal to that of the transferor. If the consideration is greater than the cost, the transferor will realise a gain and the transferor will be taxed on their share of the actual realised gain.
Whilst Transfers to and from Look Through Companies is subject to rollover relief to the extent that the same proportional ownership of the land is maintained, the rollover relief does not extend to a transfer of shares in a LTC where the shares are transferred by the shareholders of LTC, who are also settlors of the Trust, onto a Family Trust and/or back to the original settlors. This is specifically covered by s CB 6AB (8).
PHASING OUT OF INTEREST – OLD LOANS
Interest incurred on or after 01 Oct 2021 on residential loans in place as at 27 March 2021 are subject to a progressive phasing out of the interest deduction as follows.
01 Oct 21- 31 Mar 22 75% of interest allowed
01 Apr 22- 31 Mar 23 75% of interest allowed
01 Apr 23- 31 Mar 24 50% of interest allowed
01 Apr 24- 31 Mar 25 25% of interest allowed
01 Apr 24 + 0% interest allowed.
ROLLOVER RELIEF FOR GRANDPARENTED RESIDENTIAL LOANS
Where there is a tax free rollover for the application of bright line rules, interest deduction is preserved for the transferee where the loan amounts are less or equal to the debt owing by the transferor where the original loan was in place on or prior to 27 March 2021
July 2022
