Bright-Line Test - Family Trusts and Rentals

The bright-line test taxes the profit on properties sold within five years of acquisition. As you know, the bright line test does not apply to the family home. Similarly, if the family home is contained in a family trust and the main settlor and family live in it, the bright line test does not apply. However, if the home in the trust is made available to another member of the family and the settlor has a separate home, the bright line test does apply.

If the house is rented for part of the time and used as a home for part of the time, such as when the owner goes overseas for a protracted period, look at the percentage applicable to each period of use. For example, the house is purchased on 1 April 2018. The owners live in it until 1 August when the owners go to Australia to take up a lucrative two-year contract. The house is rented for the two years and then the owners return and live in it for a further five months. At that stage, they decide to sell. Do the maths. The owners lived in the house for four months and later for five months, a total of nine months. The tenants lived in the house for two years. The house was therefore predominantly a rental and the bright line test applies.

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