Main home is not subject to capital gains tax (‘the main home exclusion’) and Government made it clear that a person can have only one main home.
However, how to determine which home is the main home if a person has a few homes as a residence, or if they are absent from their home for a period?
Property acquired from 29 March 2018 to 26 March 2021 Exclusion will apply if the dwelling on the land was used as the main home for most of the bright-line period. ‘Most’ means more than 50% of the time – and Inland Revenue draws a hard line: if the land was used as a residence for half of the bright-line period or less, the main home exclusion does not apply.
No adjustments can be made to recognise periods where the dwelling was used as a residence. Although, provided the property was used as a main home for more than 50% of the time, the property will be fully exempt under the main home exclusion regardless of any period spent living elsewhere.
Property acquired on or after 27 March 2021
For the property acquired on or after 27 March 2021 ‘main home days’ are counted. The concept of ‘main home days’ initially seems fitting. However, it includes days when the land has not been used as a main home – if these days do not exceed 12 months. An absence exceeding this 12-month buffer period is a strong indicator that the dwelling is not used by the person as a residence.
Although the outcome will be fact dependent. A friend house-sitting while you’re backpacking around Europe is one thing but relocating to London for two years and renting it out is another. If a person relocates and stays in their home while visiting twice a year, this will not constitute a fixed or permanent presence, nor would it be typical use of a residential dwelling. The main home exclusion would not apply.
However, an adjustment is allowed for periods where the dwelling was used as a residence (for land acquired on or after 27 March 2021). For example, if a property was acquired in mid-2021, the taxpayer lived in the property until mid-2022 and left for a two year OE to London, returning to the property in mid-2024, if the property was then sold in mid-2026, then the main home exemption could apply for three years, but would not apply for two years; that is, 40% of any income from the property would be taxable under the bright-line.
If you have any further questions or would like to discuss this matter, please do not hesitate to contact Logan Granger.
Disclaimer – While all care has been taken, Johnston Associates Chartered Accountants Ltd and its staff accept no liability for the content of this article; always see your professional advisor before taking any action that you are unsure about.
JOHNSTON ASSOCIATES, Level 1, One Jervois Road, Ponsonby, T: 09 361 6701, www.johnstonassociates.co.nz
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29 May 2023