Bright-Line Test for Residential Property Sales Extended From 2 to 5 Years

From the 29th of March, 2018, the “bright-line test” will last five years after having been extended from the original two years, the highlight of the newly legislated Taxation (Annual Rates for 2017-18, Employment and Investment Income and Remedial Matters) Bill. Properties purchased on and after this date will have to pay tax on the sale of residential property if sold within five years.

The bright line test will continue to operate as it did since its introduction in 2015, and the only thing that has changed is the extension from two years to five. This means that any residential properties purchased or acquired before 29 March 2018 will still be under the two-year bright-line test. After this point, if a residential property is disposed or sold within five years, the sale of that dwelling will be taxed unless an exemption applies.

Like any good rule, there are exemptions to the 5-year bright-line test. The bright-line test does not apply if the property was: your main home, transferred as part of an inheritance, or transferred to you as an executor/administrator of a deceased estate. A person’s “main home” is the predominantly used residential property for most of the time the person owned the land. If a person has more than one home, the home with which they have the greatest connection is their “main home.”

The bright-line test’s extension by the New Zealand government is believed to help improve housing affordability, reduce speculative demand, stabilize the housing market, and bring back fairness to the tax system.

If you are planning on selling your residential property or need more information on the bright-line test, get specialized legal advice from the property law experts at Gillespie Young Watson Law, trusted property conveyancing lawyers Wellington wide.

Visit the Gillespie Young Watson website today!