Income tax – Application of the s CZ 39 5 year bright-line test to certain family and close relationship transactions
This interpretation statement considers the requirements of the 5 year bright-line test for residential land in s CZ 39 of the Income Tax Act 2007 and how it applies to certain family and close relationship transactions. Those family and close relationship transactions are when the ownership of residential land (that is not a main home) changes from:
- parents to their child to assist the child with buying their first home;
- one partner to themselves and their new partner; and
- all the beneficiaries who inherit the land under a will or rules of intestacy to some of the beneficiaries.
The bright-line test under s CZ 39 applies if a person first acquired an estate or interest in residential land on or after 29 March 2018 but before 27 March 2021.
Public consultation on an earlier draft of this interpretation statement closed in October 2022. The release of the finalised statement has been timed to match the passage of the Taxation (Annual Rates for 2022-23, Platform Economy, and Remedial Matters) Act 2023 on 31 March 2023.
A separate interpretation statement on the application of the 10 year or 5 year (for new builds) bright-line test in s CB 6A of the Income Tax Act 2007 (which generally applies to residential land acquired on or after 27 March 2021) to the family and close relationship transactions considered in IS 23/02 is intended to be released in 2023. However, the conclusions reached in IS 23/02 are likely to apply to s CB 6A.
Income Tax Act 2007, ss AA 3, BD 3, subpart CB (ss CB 6A, CB 6AB, CB 6AC, CB 6AE, CB 6 to CB 12, CB 14, CB 16A, CB 23B), subpart CZ (ss CZ 39, CZ 40), part D (s DB 23), s EA 2, subpart EL (ss EL 5, EL 7, EL 20), subpart FB (ss FB 1B, FB 3A), subpart FC (ss FC 1, FC 2, FC 9), subpart GC (s GC 1), subpart HB, subpart HC (s HC 14), s YA 1 (“amount”, “bright-line acquisition date”, “bright-line disposal date and bright-line date”, “bright-line period”, “company”, “dispose”, “dwelling”, “estate or interest in land”, “interest”, “land”, “residential land”, “trading stock”), YB 21
Interpretation Act 1999, s 29
Land and Income Tax Act 1954, ss 101, 102
Land Transfer Act 2017, s 51
Property Law Act 2007, ss 9, 25
Property (Relationships) Act 1976, part 6, s 25
Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022, ss 48, 49
Taxation (Bright-Line Test for Residential Land) Act 2015, s 4
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