IRD are currently consulting on the questions “When does the business premises exclusion under s CB 19 apply to land being taxed under ss CB 6 to CB 11?” and “When does the business premises exclusion to the bright-line test apply?”
Taxing provisions under CB 6 to CB 11 have always existed, but are typically narrower in application, however more people are potentially impacted by the Brightline Rules, so it would seem prudent for IRD to ensure that they make their view on the business premises exclusion clear.
The Commissioner has determined that land is not “residential land” if it has been used predominantly as business premises, and as such will not be subject to the bright-line test, even if the land has a dwelling on it. IRD consider “predominantly” is where more than 50% of the area of land has been used as business premises, and it has been used this way for more the 50% of the time the seller owned it. Where this is the case, then all of the land is excluded from being residential land and subsequently the Bright-line rules.
Section CB 19, (the business premises exclusion) does not in itself apply to land taxed under s CB 6A (the Brightline test). As such, care needs to be taken to determine which of the land taxing provisions a land sale may fall under, before applying these business premises exemption tests.
The draft QWBA also provides some examples and a decision tree to assist. Comments on both drafts close 7 June 2019.