Brightline Property Test

You may have received notification from Inland Revenue recently regarding property sales relating to the Brightline rule.

Brightline Property Test

If your sale does not fall under the Bright Line test and is excluded, then tax is not payable on the sale of this property.

The bright-line property rule for residential property and applies to anyone buying and selling property from 1 October 2015.

If you sell a residential property you have owned for less than 5 years you may have to pay income tax. This rule also applies to New Zealand tax residents who buy overseas residential properties.

Residential property includes:

  • land with a house on it
  • land the owner will build a house on at some stage
  • land the owner may one day build a house on.

The bright-line property rule

The bright-line property rule looks at whether the property was either:

  • purchased on or after 1 October 2015 through to 28 March 2018 inclusive, and sold within 2 years
  • purchased on or after 29 March 2018 and sold within 5 years.

Generally, the bright-line period starts on the date the property’s title is registered with Land Information New Zealand (LINZ) and ends when you enter into a Sale and Purchase agreement.

If the property is in another country, the bright-line period starts on the date the transfer was registered under that country’s laws.

The bright-line period for properties purchased ‘off the plans’ where the title has not yet been issued begins when you sign the agreement to purchase the land.

Selling residential property after the bright-line period ends

If you sell a property outside the bright-line period, the bright-line rule will not apply to the sale. But the intention and other property sale rules will still apply.

Intention rule

When a property has been bought with the firm intention of resale you’ll have to pay tax on any profit from the sale.

The intention to sell does not need to be the main reason for buying the property – it could be one of a number of reasons for buying.

Exclusions to the bright-line rule

When you sell residential property there are situations when the bright-line property rule does not apply.

  • The property is your main home.
  • You inherited the property.
  • You’re the executor or administrator of a deceased estate.

Check out the Inland Revenue website for more information.

Inland Revenue have a Property Tax Decision tool you can use to check if this applies to you.

Information curtesy of Inland Revenue

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