The Bright Line Test was introduced as part of the Taxation Act 2015. It requires income tax to be paid on any gains from residential property that is disposed of within two years of acquisition, subject to some exceptions.
The new law change came into effect from 29 March 2018. This means the general rule for residential property sales that are not exempt is now as follows:
- If the residential property is sold within 2 years of acquisition, and the acquisition date is on or after 1 October 2015 then the bright line rules apply (and the gain on sale is likely taxable)
- If the residential property is sold within 5 years of acquisition, and the acquisition date is on or after 29 March 2018 then the bright line rules apply (and the gain on sale is likely taxable)
As a general rule, the sale date is the date of the contract to sell the property. The acquisition date will typically be the date the transfer is registered at LINZ. For sales off the plan the acquisition date is earlier however – it is the date of the agreement for sale and purchase.
The exemption we most often see in practice is the “main home” exemption. These rules do not apply to sales of a “main home”.
Other property taxes
There is of course a broader tax regime as to when property transactions might be taxable. The above is specific to the Bright Line rules only. It is intended as a quick summary of the latest “Bright Line” changes. Therefore, if you need more detailed information please contact us.