The Bright-line test applies to anyone who is buying and selling residential property on or after 1 October 2015. If you sell a property within 10 years, you may have to pay income tax on any gain on sale (exclusions apply – see below).
The date you purchase your property determines which Bright-line rule applies:
- The 10-year rule
This applies when you purchase after 1 October 2015 and sold it within 10 years of buying the property.
- The 5-year rule
This applies when you purchase a qualifying new build on or after 27 March 2021 and sold within 5 years.
It also applies when you purchase the property between 29 March 2018 and 26 March 2021 and sold within 5 years.
- The 2-year rule
This applies when you purchase the property between 1 October 2015 and 28 March 2018 and sold within the 2-year bright-line period.
Who is affected?
Anyone who buys and sells residential property in New Zealand. This also includes New Zealand tax residents who buy overseas residential properties.
The Bright-line test doesn’t affect those who have purchased a residential property before 1 October 2015.
When does the Brightline test start and end?
It starts on the date the property’s title is transferred to you (settlement date).
It ends when you have entered into a binding sale and purchase agreement to sell the property.
For full information on when a property is acquired – read the QB 17/02 – IRD’s Technical Tax.
What are the exclusions?
The property will not be taxable under the bright-line property rule if you meet one of the following exclusions:
- it’s your main home and your use meets certain criteria
- it’s used predominately as business premises
- it’s being used as farmland or capable of being used as farmland.
If you need help working out if your property sale is excluded from the bright-line property rule, talk to an accountant.
