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Recent changes to the bright-line test, interest deductibility and ownership transfer rules may make this a suitable time for property owners to review how ownership of their residential investment properties is structured. If you haven’t assessed your holdings recently, restructuring could provide you with some benefits.
Time to read: 3 mins
As of 1 July 2024, the bright-line test returned to a two-year period. This means that from that date forward, you'll only be liable for tax on any profit made on property sales if you owned the property for less than two years – unless an exception applies.
This change is significant because properties that were previously under the five-year or ten-year bright-line period are now assessed under the shorter two-year period, potentially removing your tax obligations if you decide to sell.
Interest deductibility on residential rental property is being phased back in. From 1 April 2025, interest expenses on loans for residential rental properties will once again become fully deductible. This change is a relief for many property owners who’ve faced rising costs due to the gradual removal of interest deductibility.
Another important update involves the rollover relief rules related to property ownership transfers. Under rollover relief, when transferring property to another related person, if the necessary criteria are met, the original owner is not taxed at the time of transfer and the new owner is treated as having bought the property at the same time and price as the original owner.
From 1 July 2024, these rollover relief rules have applied to all transfers between associated persons, provided the parties have been associated for at least two years prior to the transfer. This can be a useful tool for property owners looking to restructure their holdings without triggering a taxable event.
If you're considering restructuring your property holdings, understanding how the rollover relief works is essential. The rule allows you to transfer residential rental property from one ownership structure to another without resetting the bright-line period – if the parties involved meet the association criteria.
The following are types of transfers that are now included under rollover relief rules:
A key point to note is that you can only claim the rollover relief once in any two-year period for a particular property.
Given the changes to tax laws, now is an opportune time to assess your investment property strategy and whether property is held in the best entity. By restructuring how your properties are held, you could:
If you're unsure about how these changes impact your personal situation, reach out to your Baker Tilly Staples Rodway advisor.
DISCLAIMER No liability is assumed by Baker Tilly Staples Rodway for any losses suffered by any person relying directly or indirectly upon any article within this website. It is recommended that you consult your advisor before acting on this information.
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