Changes to the Bright-Line Test

Changes to the Bright-line Test took effect from 1 July 2024.

The Bright-line Test (also known as the “Bright-line Property Rule”) is a law that determines if tax is payable on any profit made on the sale of a residential property in New Zealand. Like a capital gains tax, the Bright-line Test calculates the difference between what you bought and sold a property for. It then applies an income tax charge on qualifying homes.

As a result of the change of government, the bright-line period has been reduced from ten years (or five years for new builds) to two years. Therefore, properties sold after 1 July 2024 will only have to pay tax on any profit made if they have owned the property for less than two years. The changes to the Bright-line Test also means you are no longer required to separate out new builds from other properties.

This shorter Bright-line Test applies to all properties no matter when you purchased them, it is not just applicable to properties bought after July 1 2024. Therefore, properties purchased before 1 July 2022 will no longer be subject to the Brightline test because following the changes, all sales of those properties will have occurred after two years.

Situations where the Bright-line Test does not apply

You are still exempt from the Bright-line Test if you are selling a property that:

• has been your ‘main home’, meaning you have used more than 50% of the property as your main home for more than 50% of the time that you have owned it;
• is a business premises and farmland; or
• if you’re the executor or administrator of a deceased estate, you inherited the property, or the property is a division of relationship property.

Property affected by a North Island adverse weather event and sold to a Crown or local authority is also not taxable under the Bright-line Test.

How to calculate if the Bright-line Test applies to you

For a standard purchase of property, the bright-line period starts from the date the property’s title is transferred to you, generally the settlement date.

For a standard sale, the bright-line period ends when you enter into a binding sale and purchase agreement to sell the property.

Different rules apply for other types of purchase, and for other types of sale or disposal, for example when property is gifted. The IRD website is useful to calculate your start and end dates: Click Here

If you are uncertain if the Bright-line Test applies to your property sale, please contact the Goldman Legal team to discuss this at [email protected]