By Joseph Chueh – 24 July 2017

In 2016 we wrote about the bright-line test for residential property and how a change of trustee in a trust would trigger the two-year bright-line period. This was an issue for trusts who had owned residential properties prior to the introduction of the bright-line legislation.

Based on the wording in the new legislation, for those trusts, a gain on sale would be taxable should the trusts sell their properties within 2 years from the date the titles for their properties were amended due to a change of trustees.

Given this potential result, we highlighted the issue with Inland Revenue Policy Advice.  This has led to the Government recently moving to remedy this issue by amending the bright-line legislation.

The amendment clarifies that the registration of an instrument of transfer when there is a change of trustee for a trust will not re-start the two-year bright-line period. It was not intended that this type of transfer would start the bright-line period as the property remained in the trust. There would be no disposal for income tax purposes.

This amendment is effective from 1 October 2015 which is the date the bright-line legislation came into effect.