Inland Revenue has released seven final “Questions We’ve Been Asked” (QWBAs), including two that clarify the application of the bright-line test in common land sale scenarios involving subdivisions and lifestyle blocks. This article focuses on QB 25/12, which deals with subdivided land, and QB 25/13, which covers lifestyle blocks. Both provide important guidance on the application of the main home exclusion and its interaction with the definitions of “residential land” and “farmland”.

Subdivided land: can a vacant section qualify for the main home exclusion?

Subdividing land can raise complex questions under the bright-line rules. A common scenario is when a homeowner subdivides their property and sells a vacant section—previously part of their main home—and claims the main home exclusion. Buyers may question this claim when the sold section contains no dwelling.

QB 25/12 clarifies that the “main home” exclusion can still apply even if the section being sold does not have a dwelling on it, provided:

• More than 50% of the area of the land in the subdivided section has been used for a dwelling that was the seller’s main home, and
• The seller has used the land in that manner for more than 50% of the time.

This does not mean that the house itself must occupy over half of the section.  When assessing whether the land is “used for a dwelling”, it includes other areas of land the seller uses in connection with or for the benefit of the dwelling—such as gardens, lawns, or play areas. If, pre-subdivision, the vendor uses the whole section as part of their dwelling, then the whole undivided section is the “main home” of the vendor.

However, the QB notes that it is actual use of the land, rather than intended use that is relevant – therefore it is necessary that the vacant section was previously used as part of the “main home”; not just that it could have been used but wasn’t.

The sale following subdivision will be subject to the “main home” exemption provided the other tests are also met (for example, they have lived there more than 50% of the time).

Lifestyle blocks: residential or farmland?

Similar principles apply to lifestyle blocks, but with an added layer of complexity: determining whether the land is classified as “residential land” or “farmland.”

The bright-line test applies only to sales of residential land. If the land is instead classified as farmland, the bright-line rule does not apply—even if a house is present on the land.

According to QB 25/13, land is classified as “farmland” if it is either:

• Being worked in the farming or agricultural business of the land’s owner, or
• Capable of being worked as a farming or agricultural business (e.g. leased to someone who uses it to operate a farm).

Under the second limb, the land must be capable of being worked as a farm or agricultural business in its own right.  This test is not met if the land can be farmed only as part of a larger farm. 
The first limb considers the land’s actual use, while the second limb is concerned with the land’s inherent capability, regardless of how it is currently used.  

The test applies to the whole of the land and there is no apportionment between the part of the land with the dwelling on it and the rest.

If the land does not meet the farmland definition and is classified as residential land, the main home exclusion must then be considered. The test mirrors the subdivision scenario: 

• The dwelling and associated curtilage (e.g. gardens, play areas) must make up more than 50% of the land area, and
• The property must have been used as the person’s main home for more than 50% of the time.

On lifestyle blocks, features such as vegetable gardens, flower beds, and recreational areas connected to the dwelling count toward the “used for a dwelling” test. 

Final comments

These final QWBAs offer helpful clarification on how the main home exclusion applies in the context of subdivisions and lifestyle blocks.