What is the Bright-Line Test?

The Bright-Line Test is a New Zealand income tax rule that may require income tax to be paid on any profit made from selling residential property where the sale occurs within a prescribed period after the property is acquired.

 

When does it apply?

For most residential property sold on or after 1 July 2024, the bright-line period is two (2) years. If the property is sold outside this period, the Bright-Line Test does not apply, although other tax rules may still apply in some circumstances.

 

How is the bright-line period measured?

Start date – usually the date legal title is transferred to the buyer (often settlement date).

End date – usually the date the seller signs a binding agreement for sale (not settlement date).

Different rules may apply for off-the-plan purchases, subdivisions and some trust transactions.

 

What property is covered?

The test applies to residential land, including houses, apartments, and vacant residential land capable of being built on.  It generally does not apply to farmland or land used predominantly as business premises.

 

Main home exclusion

A property used as the seller’s main home may be excluded if statutory criteria are met. For sales after 1 July 2024, this generally requires that more than 50% of the property’s area and more than 50% of the ownership period were used as the seller’s main home.

 

Important for purchasers

Any Bright-Line tax liability is the seller’s responsibility and does not transfer to the purchaser.

 

Disclaimer

This information is of a general nature only and does not constitute legal or tax advice. Independent professional advice should be obtained.