The bright-line test applicable to residential properties has increased from two years to five years.  This increase came into force on 29 March 2018. The implication of this increase is that residential properties bought and sold within a five year time frame 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 five year period applies to properties purchased from when the legislation came into force (29 March 2018).  Properties purchased before the change in legislation 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.  This exemption only applies if a legally binding separation agreement has been signed by both parties; or
  • If the property is inherited.

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
Wellington