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 another exemption applies. This rule is called the “brightline test”. These timeframes have changed over the years as the government has changed, and in December 2023, the National-led government amended the rules once again.
What is the new brightline rule?
The brightline test will be reduced from 10 years to 2 years from 1 July 2024. The new legislation has not officially been enacted yet, so the existing brightline rules still apply for now.
The announcement means that residential property sold after 1 July 2024 will only be impacted by the brightline tax if it is sold within a 2-year period. The policy will apply retrospectively, affecting all property purchases made within the previous 10-year brightline period.
The timeframe is the only change reported, with the following brightline rules still applying after 1 July 2024.
Brightline period start and finish dates
For standard sales of land the start of the two year timeframe is from the date of registration of transfer of title (usually the settlement date), amd the end date for the brightline 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 purchase (usually the date on the agreement).
The brightline period 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 is registered, or if you buy 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.
Brightline exemption for the “main home”
If you buy and sell your main home, the brightline rule won’t apply. You can only use the main home exemption twice over any two-year period, depending on when you bought the property.
Residential properties held in trust can use the main home exemption under the brightline 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 and your lawyer before entering into an agreement for the sale of your property if you think the brightline timeframe might apply.
This article was first published in June 2018 and revised in March 2024.
Our thanks to Abby Parker for writing this article.
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