There are special rules for transfers of residential property to or from trusts for transfers made on or after 1 April 2022 where the land is subject to Te Ture Whenua Māori Act 1993. The bright-line property rule 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.
Rollover relief under the bright-line property rule makes sure that the person disposing of or selling residential land is not taxed on the transfer if certain conditions are met or limits the amount of tax they need to pay at the time of the transfer. The purchaser is also treated as if they acquired the property at the same time as the person they acquired it from and, if full rollover relief applies, for the same price.
4 categories of property transfer
There are 4 categories of property transfer that may qualify for rollover relief.
- Transfers by settlors of a Māori family trust to the trustees.
- Transfers back to the settlors who first transferred the property to the Māori family trust.
- Resettlement transactions, where the trustees of a Māori family trust resettle the property on a new, related trust.
- Transfers to certain trusts if the land is part of the settlement of a claim under te Tiriti.
Work out whether the bright-line rollover relief applies
Full and partial rollover relief from paying tax under the bright-line property rule
Whether there is full rollover relief (no bright-line tax) to pay or partial rollover relief (possibly some bright-line tax to pay) for all 4 categories depends on whether there is payment for the transfer and if so, how much.
Full rollover relief
Full rollover relief is provided if the amount for the transfer is equal to or less than the previous owner’s purchase cost. This means you are treated as having purchased it at the same price and at the same time as the previous owner, and the previous owner is treated as having disposed of the land at cost. This means there is no bright-line tax to pay at the time of the transfer.
Partial rollover relief
Partial relief is provided if the amount for the transfer exceeds the previous owner’s purchase cost but is less than the market value of the land. In this case both of the following apply:
- you are treated as having purchased the land at the time that 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 having disposed of the land 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, which you will be able to deduct if you go on to sell the property and the bright-line property rule applies. The bright-line period will not restart even if the previous owner had to pay tax on the transfer under the bright-line property rule.
Part 4 of the Brightline property tax - IR1227 guide talks about ownership transfers.
You can get rollover relief for transfers of residential land if the land is covered by Te Ture Whenua Māori Act 1993, as long as all the following apply:
- the trustee of the trust is either a Māori authority, or is eligible to be a Māori authority
- all relevant transfers to the trust are made by people who are both settlors and beneficiaries of the trust
- all beneficiaries of the trust are members of the same iwi or hapū, or descendants of the same tipuna (living or dead).
You can get rollover relief for a transfer of residential land back to the settlor (or settlors) who originally transferred the property to the trust if all the following apply:
- the trustee of the trust is either a Māori authority, or is eligible to elect to be a Māori authority
- in addition to being settlors, the recipients are also beneficiaries of the trust
- all beneficiaries of the trust are either members of the same iwi or hapū or descendants of the same tipuna
- the land is subject to Te Ture Whenua Māori Act 1993
- the recipients get proportionally the same amount of land they had originally transferred to the trustees.
Rollover relief is available for a transfer of residential land held by trustees of a trust (trust B) that is either a Māori authority, or is eligible to elect to be a Māori authority, that was resettled onto another eligible trust (trust A).
This applies if at the time of the land transfer from trust B to trust A all the following apply:
- the beneficiaries of trust B are the same as for trust A
- all beneficiaries of each trust are either members of the same iwi or hapū or descendants of the same tipuna
- the land is subject to Te Ture Whenua Māori Act 1993.
As long as the above requirements are met, a person holding residential land as trustee of trust A, where land was transferred to them from trust B, has the same bright-line acquisition date for the land that trust B had.
Rollover relief is available for transfers of residential land received as part of a settlement under te Tiriti o Waitangi to a trust that is a Māori authority, or is eligible to be a Māori authority.
Settlements of claims under te Tiriti can be a multi-stage process
The Crown will generally transfer Tiriti settlement property to a single governance entity known as a post-settlement governance entity (PSGE). This entity may act on behalf of several groups, for example, different hapū, or as a collective for a number of iwi groups. The PSGE will then transfer settlement assets to different members of the claimant group under the deed of settlement or settlement legislation.
Rollover relief applies when residential land:
- comes under Te Ture Whenua Māori Act 1993
- is part of the settlement of a claim under te Tiriti
- is transferred to a trustee of a trust that is a Māori authority, or is eligible to be a Māori authority, because the trustee, on behalf of Māori claimants, receives and manages assets transferred by the Crown as part of the settlement of a claim under te Tiriti.
This provides rollover relief for the transfer of Treaty settlement residential land from the PSGE to a member of the claimant group.
If the above requirements are met, the recipient trustee has, for the purposes of the bright-line property rule, acquired the land for its market value at the time the Crown transferred the land.
At the exact time of the Treaty settlement it may not be possible to work out the market value of the land. In this case, a reasonable estimate shortly after settlement (for example, determined for insurance purposes) is acceptable.
We treat the PSGE as disposing of the land for the greater of its cost to the PSGE or the amount of consideration received (if any) from the member of the claimant group the PSGE transfers the land to (the recipient trustee).
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