Rollover Relief

Let’s talk about Rollover Relief !

Prior to the inception of the bright-line rule, it was relatively common practice to restructure the ownership of residential property to get better asset protection, estate planning and tax outcomes. Circumstances change and so have the tax rules with residential property.

With the bright-line rule, first 2 years then five years, restructuring ownership of residential property risked triggering a taxable gain if the property was still within its original bright-line period; and it may reset the bright-line clock. These issues were compounded further in March 2021 when the bright-line period was extended to 10 years and interest limitation rules were introduced.

However, in conjunction with the extension of the bright-line period to 10 years, the government decided to introduce “rollover relief” to allow for restructures of the ownership of residential property to take place in restricted circumstances.

Rollover relief is a tax concession for residential property to be transferred from one entity to another within a family group, without triggering the bright-line rule and resetting the bright-line clock, and without compromising any existing entitlements to claim interest as a deductible expense. Some of the scenarios that rollover relief may apply come with complexities with the tax rules around these. With trusts principal settlor rules will apply.

(a)From individual owners to a trust

(b)From a trust to a beneficiary

(c)From individuals to an LTC and vice versa

(d)From one trust to another trust

(e)From an LTC owned by individuals to a trust

There are important conditions that need to be satisfied in each instance with the core philosophy being that rollover relief is intended to be available when there is no change in effective ownership.

When does rollover relief not apply?

Some scenarios where rollover relief is not available are as follows:

(a)The transfer of property to an “ordinary” company (an ordinary company in this context is a company that is not an LTC)

(b)The transfer of shares in an LTC from one owner to another, including from an individual to a trust

(c)The transfer of shares in an ordinary company from one owner to another, including from an individual to a trust

Watch out for other potential tax consequences.

An important disclaimer - these rollover relief concessions mean that you avoid negative consequences that might otherwise apply under the bright-line or interest limitation rules. However, they do not relieve you from other potential negative tax consequences that can arise on transferring property, such as tax to pay due to tainting or depreciation recovery.

As always, there is a high degree of complexity to this area of land tax, and you should always seek expert advice before any restructure. 

Martin Davidson & Associates will guide you with your decisions to minimize any unintended consequences with your properties.