If you’ve had a property sale in the last few years you are likely to be the lucky recipient of the Inland Revenue’s recent email campaign on the brightline test.
The brightline test can apply to a residential property sale that occurs within 5 years of purchase (previously 2 years) and where the main home exemption doesn’t apply.
Any communication from Inland Revenue can cause a level of concern, and when land is involved, the level of anxiety can go through the roof, especially when that communication is inferring that you have a property sale that is taxable under the brightline test.
While it is good to see Inland Revenue is making the most of its system that identifies possible brightline sales, it is not helpful when the communication includes property sales that are exempt under the main home exemption, or where the property was actually purchased before the brightline test was introduced. Typically, this information is collected from the Land Transfer Tax Statement completed by both vendors and purchasers at the time of settlement. Hence the accurate completion of this Statement is important.
To add to the concern, Inland Revenue is identifying transactions in the current tax year before the taxpayer has had a chance to discuss their position with their accountant or turn their mind to filing a tax return.
In the email campaign, Inland Revenue is asking taxpayers to file an IR833 ‘Brightline property sale information’ with their tax return or submit a voluntary disclosure if income has not been returned when it should have. However, we are aware of instances where the property sale information has already been filed and income disclosed.
Inland Revenue is only acting on information they have on hand, which is not always complete. If you have been contacted by Inland Revenue in respect of the brightline test and need assistance with your response, please contact your Hayes Knight advisor.