Change to the Bright-Line Test: A Reaction to the Housing Crisis

The “Bright-line test” taxation rule sets out when tax is to be paid on the sale of a residential property. This rule takes into consideration the amount of time property is owned and in what circumstances property changes ownership.

Parliament has recently extended the bright-line test of residential property from two to five years, as promised in Labours’ pre-election campaign. Revenue Minister Stuart Nash, in his initial announcement, noted that the amendment is there to aid in deterring residential property speculators and overall help with housing affordability for owner-occupiers.

How this applies to you:

The 2018 amendment only sets out to change the time frame; all other aspects of the test, such as exceptions, have been unchanged.

If you currently own residential property or you are looking at purchasing, we note as follows:

  1. The bright-line rule will apply, if you have purchased any residential property on or after 1 October 2015 and:

a.  If you bought the property on 1 October 2015 to 28 March 2018 (inclusive), and you have owned the property for less than two years; or

b.  If you bought the property on or after 29 March 2018, and you have owned the property for less than five years.

      2. The bright line test does not apply to:

a. Residential property, which is the owner’s main home, or

b. Residential property that has been transferred as a result of relationship property settlement or inheritance.

Overall, if the bright-line test applies to you, you will be required to pay tax on the profit from the sale at the rate of your personal tax rate.

If you wish to know more about the bright-line test, and how it can affect you, we would be happy to discuss with you.