Understanding the Bright Line Property Rule

The Bright Line Property Rule is a Tax Law that was first introduced in 2015 and has been amended twice since. It sets out to tax property investors who buy and sell residential property within the timeframe set out in the Bright Line Property Rule. 

In a nutshell:

The bright-line property rule does not usually apply to a sale of property that has been your main home, inherited property, or if you’re the executor or administrator of a deceased estate. The Exemption doesn’t apply in certain circumstances such as a property that is partly your home and partly rented out, how many times you have sold in the previous two years and if there was a delay between purchase and it becoming your home.

The bright-line property rule does not apply to properties acquired prior to 1 October 2015, but that does not mean the increase in value between purchase and sale is exempt from tax.

It does apply to all properties other than your home you may sell now that were acquired:

• between 1 October 2015 and 28 March 2018 and are subject to a 2 year Bright Line period
• between 28 March 2018 and 26 March 2021 and are subject to a 5 year Bright Line period
• after 26 March 2021 and are subject to a 10 year Bright Line period

The date a property is acquired is defined as the date of registration in Land on Line. The date of sale is defined as the date an agreement is entered into although this can be more complex.  Once you have signed an agreement to sell a property owned by you, you are caught by the Test.

If you are selling a property purchased after 1 October 2018 including your home, and you think you fall within one of the Bright-Line periods, we recommend speaking with us or your tax expert to determine your tax obligations before you list the property for sale. Alternatively visit the IRD website here for more detailed information.