New property tax laws affect trusts

Posted: 9 February 2017

There are new property tax rules which apply to the sale or purchase of property effective from  the 1st of October 2015. You may not be aware that these rules have an effect on all those who buy or sell property including those who have existing family trusts which own property.

While all existing property tax rules still apply, there is a new ‘Bright Line’ test which will impose an income tax on any gain from residential land purchased and sold (or otherwise disposed of) within two years unless an exception applies.

One key exception to the bright line test is the ‘Main Home Exemption. If the property will be used as your main home, or in the case of a seller, the property has been used predominantly as your main home, then you may claim this exemption. The catch is that the exemption may only be claimed twice in a two year period. For those with family trusts there is a further twist. A trust may claim the main home exemption but only if the trust owned property is the main home for a beneficiary of the trust and the settlors of the trust do not also personally own a home for which the main home exemption has been claimed. The reason for this is pure and simple. It is to stop people using trusts to claim the main home exemption on more than one property, one in a trust and the other in your own name! Family Trusts also have to comply with all other information requirements on the new tax statements which means that a trust must provide an IRD number on a tax statement signed by the trustees. Traditionally, a family trust which owned only a Family Home and did not earn income would not have had to obtain an IRD number.

We now recommend that all those with family trusts take immediate steps to obtain an IRD number for the trust but do so on the basis that you register the trust as ‘non-active’ with the IRD if the trust will not earn taxable income and does not therefore need to file tax returns.

For advice on how the new tax laws may affect you or for assistance with obtaining an IRD number for your trust please give us a call on (03) 3774421

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