There are special rollover relief rules for certain transfers of residential property to or from family trusts. These mean the bright-line test looks at how long the person the property was transferred to (transferee) and the previous owner who made the transfer (transferor) held the property for.
Whether full rollover relief, no tax to pay, or partial rollover relief, some tax to pay, applies depends on whether payment is made for the transfer and if so, how much.
Between 1 April 2022 and 30 June 2024, rollover relief applies to transfers made if the family trust meets the following:
- each transferor (in the case of transfers to a trust) or each transferee of the property (in the case of transfers from a trust back to a settlor) is both a settlor and a beneficiary of the trust
- at least one of those transferors or transferees of the property is also a principal settlor of the trust
- all principal settlors are beneficiaries of the trust
- all principal settlors are close family associates
- each beneficiary is a close family beneficiary.
Our Associated persons definitions for income tax purposes - IR620 guide defines how degrees of association are worked out in family situations.
Work out whether rollover relief applies
This tool applies to property transfers before 1 July 2024 and will help you work out if full or partial rollover relief applies.
Full and partial rollover relief from paying tax under the bright-line property test
Whether there is full rollover relief, no tax to pay, or partial rollover relief, possibly some tax to pay, depends on whether payment is made for the transfer and if so, how much.
Full relief
You can get full relief if the amount you receive for the transfer is equal to or less than the previous owner’s purchase cost.
You are treated as purchasing the property at the same price and at the same time as the previous owner. The previous owner is treated as disposing of the property at cost. This means there is no tax to pay at the time of the transfer.
Partial relief
You can get partial relief if the amount you receive for the transfer is more than the previous owner’s purchase cost but is less than the market value of the land. In this case both the following apply:
- you're treated as purchasing the property at the time the previous owner purchased it but for the actual sale price you paid rather than the market value
- the previous owner is also treated as disposing of the property for the actual sale price rather than its market value.
This means the previous owner may be taxed on the difference between the actual sale price and their purchase cost if the transfer is made within the bright-line period. The actual sale price will also be your purchase cost. You can deduct this cost if you go on to sell the property and the bright-line test applies. The bright-line period will not restart even if the previous owner had to pay tax on the transfer under the bright-line test.
As well as meeting the rollover trust criteria, another rule applies for a transfer from a trust to a group of settlors (transferees) where the transferees had transferred the property to the trust. For rollover relief to apply, the transferees must acquire proportionally the same amount of land they had originally transferred to the trustee.
As well as meeting the rollover trust criteria, another rule applies for a transfer from a trust to a group of settlors (transferees) where the transferee(s) had not previously transferred the property to the trust. For rollover relief to apply, all transferees must be principal settlors at the time that the trustee transfers the property to the transferees and at the time that the trustee acquired the property. Only transfers occurring on or after 31 March 2023 qualify for rollover relief under this rule.
Rollover relief is also available for a resettlement transaction where the trustees of the trust transfer the property to a new trust, provided that the following apply:
- each family member beneficiary of the resettled trust is either a beneficiary of the first trust or a close family associate of a principal settlor of the first trust
- both trusts meet the criteria relating to the principal settlors and beneficiaries meaning that all principal settlors are beneficiaries of the trust, all principal settlors are close family associates and all beneficiaries are close family beneficiaries.
Rollover relief is available if a person transfers residential property to themselves in another capacity. This means that if the owners of a look-through company (LTC) or the partners in a partnership transfer property they own in their personal capacity to the LTC or partnership (or vice versa), rollover relief applies to the extent the LTC owners or partners have the same ownership interest in the property before and after the transfer.
For the purposes of the rollover relief rules applying to family trusts, the transferors or transferees may similarly have different capacities in relation to the rollover trust criteria. For example, a transferee may be a settlor of the trust in their personal capacity and be a beneficiary as an LTC owner, or they may have transferred the land to the trust in their personal capacity and acquire it back from the trust as a partner in a partnership.
For more information including examples, read our Bright-line property tax - IR1227 guide.
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