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Tax Snippets

New Bright Line Test on Property

The two year bright line test announced at Budget 2015 was enacted in November 2015 and applies to tax gains on residential property which is acquired after 1 October 2016 and later sold within two years irrespective of the intention or purpose at the time the land was acquired.

Exceptions exist for a person’s main home, property which is inherited and where it is acquired and sold as part of a relationship separation or divorce.

Losses are to be quarantined and ring-fenced to only be offset against taxable gains on other land sales.

FBT prescribed rate of interest cut

An employer is deemed to provide a fringe benefit to an employee when the employer provides a loan to the employee (or a person associated with an employee) and charges a lower interest rate than market. 

From 1 October 2015 a fringe benefit will arise if the rate of interest charged is less than 5.99%. 

This rate remains in place for subsequent quarters until reviewed.  The previous rate was 6.22%. 

Increase in Minimum Family Tax Credit

Low-income working families who are eligible for the minimum family tax credit (MFTC) are to receive an increase for the 2016–17 tax year.

The MFTC currently guarantees recipients an after-tax income of $23,036 a year ($443 a week). This will increase to $23,764 a year ($457 a week) for the 2016–17 tax year, beginning on 1 April 2016

DRR on FIF for 2014-15 income year

The deemed rate of return (DRR) for taxing foreign investment fund (FIF) interests has been set at 7.71% % for the 2014–15 income year, a decrease from 7.99% for the previous income year. The rate was set 16 November 2015 by Order in Council last week.

The deemed rate is set annually and is one of the methods that can be used to calculate income from FIF interests. The rate is based on an average of the five-year Government bond interest rate at the end of each quarter, plus a 4% margin.  It should not be confused with the Fair Dividend Rate method.