The Bright-Line Test Has Changed.
On 29 March 2018, the timeframe for the “bright-line test” for tax on disposal of residential land was extended from 2 years to 5 years.
The bright-line test applies to the sale of any residential property bought on or after 1 October 2015:
- If you bought the property between 1 October 2015 to 28 March 2018 (inclusive), then the original 2 year time frame will apply.
- If you bought/buy on or after 29 March 2018, then the 5 year rule will apply.
This means if you buy and sell residential property in New Zealand within the applicable time frame, and a tax exception does not apply, you will pay tax on any gain.
Key Points of the New Bright-Line Test:
The time frame generally starts at the point a person has "legal title" for the property transferred to them and ends at the date the person enters into an Agreement to sell the property.
For sales "off the plan", the time frame runs from the date the person enters into an Agreement to buy the property to the date when a person enters into an Agreement to sell the property.
The bright-line test only applies to residential land. Residential land includes empty land planned to be used for residential purposes but excludes business premises and farmland.
The Bright-Line Test Does Not Apply:
- To a person’s main home. A person can only have one main home. If a person has more than one home, their main home is the one with which the person has the greatest connection. The main home exception is also generally available to properties held in Trust (if certain requirements are met).
- If the property was transferred to you under a Will (for example to you as the Executor of the Estate).
- If you sell a property you inherited.
- If you received the property as part of a relationship settlement Agreement, you won’t pay tax when the property is transferred to you, but you go onto to sell the property within the applicable period (either 2 years of 5 years) then the bright-line test will apply.
- A person can only use the main home exceptions twice over any two-year period, and the main home exemption does not apply if you show a regular pattern of buying and selling residential property.
- The bright-line test runs in conjunction with the “intention test”. If one of your intentions when you bought the property was re-sale, you will have to pay tax on any profit when you sell, even if the applicable bright-line test time frame has passed.
Your Property Conveyancing Experts
Are you thinking of expanding your Christchurch property portfolio? Are you moving house and want to make sure you stay on the right side of the law? If you're buying or selling property around Canterbury, contact the property experts at Godfreys Law. Call us on (03) 366-7469.
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