Bright-line Test Changes

Under the current framework, the bright-line rules affect properties that were acquired on or after 27 March 2021 and sold within five years for qualifying new builds or within 10 years for all other properties. The bright-line period starts on the date that the transfer took place and ends on the date which you enter into a binding agreement for sale and purchase to sell your property (this is slightly different if you purchased your property off the plans).

There are exclusions where the bright-line rules do not apply such as:

•   For the period which the property has been your main home

•   If the sale of your property is subject to other tax rules, and

•   Where your property is farmland or business premises.

As of 1 July 2024, the bright-line period will be reduced from 10 years (or five years for new builds) to two years. While the new rules have not yet come into effect, the government has announced that properties sold after 1 July 2024 will only be subject to the bright-line rules if they are sold within two years from when your property was purchased.

There are still some details that have not yet been confirmed relating to the bright-line changes such as:

•   Whether the bright-line rules are triggered by the transfer of property in and out of trust ownership

•   What date the bright-line period is calculated on, and

•   The ‘main home’ exemption.

The changes to the bright-line test regime will likely be very welcome to landlords who look to benefit greatly from this change.

DISCLAIMER: All the information published is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this article. Views expressed are those of individual authors, and do not necessarily reflect the view of this firm. Articles appearing in this newsletter may be reproduced with prior approval from the editor and credit given to the source. Copyright, NZ LAW Limited, 2019. Editor: Adrienne Olsen. E-mail: adrienne@adroite.co.nz. Ph: 029 286 3650 or 04 496 5513