The bright-line test applicable to residential properties is set to increase from two years to five years.  This increase is due to come into force in March 2018 and will mean that residential properties bought and sold within a five year timeframe could be subject to taxes.

By way of reminder, the objective of the bright-line test is to target property speculators who, before the regime, were able to ‘flip’ residential properties in quick succession transactions without paying taxes on the sale proceeds.

The new five year period will apply to properties purchased after the legislation comes into force (which is expected to be March 2018).  Properties purchased before the change in legislation will continue to be subject to the bright-line test if sold within two years from the purchase date.

This change is intended to make housing prices more affordable by removing speculative interest from the residential housing market.  

There are circumstances when the bright-line test may not apply, including the following:

  • If the property is the main dwelling (if a person has more than one home, the main dwelling is determined according to which one the person has the “greatest connection to”);
  • If the property was acquired from a relationship property settlement, there will be roll-over relief for the person who is transferred the property; or
  • If the property is inherited; there will be a roll-over relief for the beneficiary (or beneficiaries) if they subsequently sell the property.

If you are thinking of selling your property and are concerned that you may be captured by this bright-line test, it is important to seek legal advice before signing any documentation relating to the potential sale.

Lindsey Mills
Senior Legal Executive