The bright-line test is a rule that taxes gains from the disposal of residential property in New Zealand.
As you may be aware the bright-line test was extended earlier this year.
While the main rules remain, there are a number of revisions you should be aware of. We have summarised the most important updates below:
What is residential property?
The bright-line rules apply to residential property.
‘Residential land’ is defined as:
But not all land is captured by the bright-line test. The following are exceptions:
This year the Taxation (Annual Rates 2020-21, Feasibility Expenditure, and Remedial Matters) Act 2021 (“the Act”) included a Supplementary Order Paper (“SOP”) which revised the bright-line test. Now, property bought and sold within ten years is captured by the bright-line test (as opposed to five years). However, the new ten year rule only applies to property acquired on or after 27 March 2021.
It is important to note that the date you acquired your residential property will determine the relevant test. The date of acquisition is usually the date of registration of your interest in the land. We have summarised the relevant dates below:
How might this affect me?
It’s not just property purchases that are affected by the bright-line test. You should also turn your mind to the bright-line test if you are thinking about winding up a trust or restructuring your properties in some other way.
We are not accountants, so while we have a good understanding of the risks that a property owner may face due to the bright-line rules, we always advise our clients to take accounting advice at an early stage (which can help avoid nasty surprises!). We are happy to help you with all your buying and selling needs.
Contact Sarah Manning, Partner (DDI 03 343 8456 /firstname.lastname@example.org) or any of the staff at Mortlock McCormack Law if you have any questions relating to the bright-line rules, or you need help with buying or selling a property.