As anticipated, the Bright-line Rule is set to revert to its original form, with a 2-year test period. Since its inception in 2015, this rule has undergone numerous adjustments, culminating in an extended 10-year test period (or a 5-year test for “new builds”).

However, effective from 1 July 2024, the sale of residential properties will now be subject to the 2-year bright-line rule instead of the previous 5 or 10 year periods. This change will have retrospective implications if the “bright-line end date” falls on or after 1 July 2024.

It’s essential to note that the bright-line end date is typically determined by the date a person enters into a sale contract, not when title transfers. For instance, if a sale contract was executed on 20 June 2024, it would be subject to the existing bright-line rules, not the 2-year test.

Similarly, the main home test is reverting to its original version, primarily based on predominant use. While this approach simplifies the assessment process, it may disadvantage some who benefited from the previous apportionment-based tests.

Fortunately, the exemption for construction periods, which excludes this time from the ownership period when assessing the main home exemption, remains unchanged.

An unexpected development is the expansion of rollover rules. These rules, originally intended to address issues with associated person transfers, will now apply to such transfers provided the associated persons have been associated for at least 2 years prior to the transfer date. However, this relief cannot be utilized more than once within a 2-year period.

This change aligns with the original intent of the rules, targeting property speculators rather than transfers between associated persons. Nevertheless, it’s crucial to clarify the definition of an associate under the Tax Rules.

Contact the team at BCA today if you require any assistance in Brightline Test.