The writer has chosen “Bright-Line test” as the first topic.
The Government announced Budget 2015 two years ago. As part of that, the Government introduced a new land sale rule which supplement the CB6 of the Income Tax Act 2007 (“2007 Act”).
You will see that you may be taxed if you satisfy the following conditions – they are 1) at the time of the purchase, 2) acquired a land, 3) with an intention (or purpose) of disposing the land and 4, disposed of the land with profit. We call this “Intention Test” (or Purpose Test), named after the wording of the section. This section was almost identical and was reproduced from the earlier version of Income Tax 2004 (“2004 Act”), without any major changes. Over time, the Government experienced that the intention test showed uncertainty and the section did not serve its original drafter’s intention. The Government wanted to provide more certain guideline, which resulted in Taxation (Bright-Line Test for Residential Land) Act 2015.
The 2015 Act received Royal Assent on 16.11.2015 and thus the 2015 took effect from that date of the Royal Assent.
Then, the relevant part of the 2007 Act is amended accordingly by way of sCB6A.
It is therefore important to analyze the section, CB6A. You may be able to read the entire section by clicking the above link. For the sake of convenience, we can summarize the requirements under rules – if, 1) after November 2015, 2) you derive a gain by way of 3) disposing of a residential land, you will be taxed for that income if you dispose of the residential land 4) within two years from the date of purchase.
Let us give an example to help you understand more clearly. Let us assume, on 02.06.2015, Tom entered into an Agreement to purchase a land. On 01.11.2015, Tom acquired a registered title to the land he purchased. On 01.02.2016, Tom again entered into an Agreement to sell the same land. On 01.04.2016, the title was changed to the purchaser, from Tom.
The issue is whether Tom is subject to the Bright-Line Test?
To answer, we need to consider whether the rule is applicable to Tom. Tom purchased the land in June 2015, prior to the introduction of the Bright-Line Test rule. Thus, it is plain that Tom is not bound by the Bright-Line Test, known as CB6A.
Does this mean Tom does not need to pay tax at all? It is a different matter. We need to examine whether Tom is (or likely to be) caught under the existing clause, being CB6 as this section was in existence while Tom entered into an agreement to purchase.
We will deal with more in the next issue, showing more examples and then, where possible, showing comparisons between the old rules and the new rules.
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