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Bright-line tax changes bring new subdivision opportunities (July 24)

Tax breaks like this are few and far between. On the 1st of July this year, new legislation for the Bright-line Test came into force and could save you money. 

Investors and Mum and Dad property owners are set to potentially save tens of thousands when selling or subdividing a residential property. The Brightline Test was first introduced to stop property speculation and to simplify many of the complex and subjective rules around property taxes. 

After many changes, the test had expanded well beyond its original intention, had a ten-year holding period and became a ‘catch-all’, no questions asked, capital gains tax. On 1 July 2024, new Bright-line Test rules were applied, simplifying many of the previous rules and reducing the holding period back to 2 years.

Subdividing and selling part of an investment property or holiday home is something that could potentially have been caught and taxed heavily under this legislation.  Assuming that you are not a property developer, property purchased before 1 July 2022 is now outside the Bright-line Test rules, and only a 2-year holding time frame applies to any property purchased on or after that date. This means that your property, which may have been previously caught under the 10-year rules, can now be subdivided without being caught and subject to the Bright-line Test taxes.

Property values may have settled somewhat over recent months. However, many landowners have locked in significant capital gains over the last five or so years and may want to bank that gain now. At the same time, there have been initiatives from the Government to encourage increased density in some urban areas.  This adds to the value of residential land and provides development opportunities for many.

So, if you have a property with spare land that could potentially provide an additional building site, it is a good time to investigate a possible subdivision.  Often a good indicator of your subdivision potential is seeing other subdivisions or intensified building in your street or locality on a similar-sized section to yours.

Different councils have varying rules on minimum sizes for new sections, so a look at their website and a quick measure-up, if you are the mathematical type, can give you a good starting point.   If it looks possible then it is worth a closer look and we are more than happy to help out.  So, feel free to give us a call or send an enquiry through.

NOTE: This article does not constitute tax advice and you should always seek specific tax advice from your accountant or lawyer.