If you sell a residential property in New Zealand within a certain timeframe, you must pay income tax on any gains, unless it’s your main home or other exemption applies.
What is the bright-line rule?
The timeframe applicable depends on when you bought the house:
- if you bought a residential property between 1 October 2015 to 28 March 2018, inclusive: the two- year bright-line rule applies, or
- if you bought a residential property on or after 29 March 2018: the five year bright-line rule applies.
When does the bright-line period start?
For standard sales of land the start of the two or five year timeframe is from the date of registration of transfer of title (usually the settlement date).
When does the bright-line period end?
For standard sales of land the end date for the bright-line timeframe is the date a person enters into an agreement to dispose of the property. This is usually the date of entry into agreement for sale and purchaser (usually the date of the agreement).
It only applies to residential property. A property isn’t residential if it’s mainly used for business or as farmland.
Different dates apply if you enter into an Agreement to on-sell the land before your purchase was registered, or if you bought the land as a result of a subdivision of property.
But whenever you buy a property intending to resell it, you’ll need to pay tax on any profit you make when you sell that property.
What is the main home exception?
If you buy and sell your main home, the bright-line rule won’t apply. It’s an exception to the bright-line rule.
But you can only use the main home exception twice over any two-year or five year period, depending on when you bought the property.
Residential properties held in trust can use the main home exception under the bright-line rule if the house sold was the main home of the principal settlor of the trust (as long as the principal settlor does not have another main home), or the main home of a beneficiary of the trust.
Check with your accountant before entering into an agreement for the sale of your property if the bright-line timeframe might apply.
Our property team can also give you general advice about bright-line timeframes and check the title to confirm the start date of the bright-line timeframe for you.
This article was first published in June 2018 and revised in June 2019.