Bright-line and nominees – a potential land mine?

Due to the rather abbreviated period of time between announcement and implementation of this law, the IRD helpfully included a section on whether certain transactions fell within the extended bright-line rules or not. This included a section on nominees.

It’s common for people to sign sale and purchase agreements with the words “and/or nominee” after the purchaser’s name. You might do this if you were intending to purchase the property through a trust, but the trust hadn’t been set up yet, or if someone intending to buy the land wasn’t available on the day. But when is the nominee considered to have acquired an interest in the land?

According to the IRD, the nominee doesn’t have an interest in the land until they’re nominated. The nominee is the one who ends up owning the land, but until the purchaser nominates them, they have no interest in the land.

Where this becomes an issue is if an agreement was signed on an “and/or nominee” basis prior to 27 March 2021, but the nomination did not occur until after that date. If someone signed the sale and purchase agreement prior to 27 March 2021 (or prior to 24 March if the offer could not be revoked before 27 March), and in fact purchased in their own name, they are subject to the 5-year bright-line test.

For an “and/or nominee” purchase, if the nomination occurs on or after 27 March 2021  the IRD believe the nominee will be under the 10-year bright-line test, even if the contract was signed before this date. This can even apply to joint ownership scenarios where one party signs before 27 March 2021, and the other party is nominated on or after 27 March 2021. In such a case, the two parties may be subject to different bright-line periods for their respective shares of the land.

The ultimate position will be very fact-specific. If you have concerns that this may affect you, please contact one of the team at Polson Higgs.