A main home is the property where you live for most of the time, or if you have more than 1 property it is the one that you have the greatest connection to.
Generally, any profit you make on the sale of your main home is taxable when you:
- have a pattern of buying and selling, or building and selling, your main home
- or a person you’re associated with are in the business of property dealing developing or building and the property was for the business
- sell it within the applicable bright-line period and the main home exclusion does not apply.
The main home exclusion when you sell a property
Your main home will be excluded from the bright-line property rule if more than 50% of the property’s area is used as your main home and it was used as your main home for the time required during the bright-line period.
The bright-line period starts on the date you bought the property which is generally the date the property's title is registered with Land Information New Zealand (LINZ) (generally the settlement date) and generally ends when you enter into a binding sale and purchase agreement to sell the property.
The amount of time within the bright-line period it must be used as your main home depends on when you acquired it (in most cases the date you acquire it is when the sale and purchase agreement to buy it became binding).
Property acquired before 27 March 2021
If you acquired your property before 27 March 2021 and sold it within the applicable 2 or 5 year bright-line period, and it was used as your main home for more than 50% of the time during the bright-line period, you’re covered by the main home exclusion. It's not enough to plan to live there, you must actually have lived there.
Property acquired on or after 27 March 2021
If you acquired your property on or after 27 March 2021 and sold it within the applicable 10 year bright-line period, and it was used as your main home for 100% of the time during the bright-line period you are generally covered by the main home exclusion.
If the property has not been used as your main home for a continuous period or periods of 12 months or less in total during the bright-line period, you do not need to count the period(s) as a change-of-use – the days in the period are 'treated as' days the property was used as your main home.
If for any continuous period or periods of more than a year it was not used as your main home, you may have to pay tax on a portion of any profit from the sale.
The main home exclusion can also apply if you’re a:
- trustee of a trust and one of the trust's beneficiaries lives in the property
- property dealer, developer or builder or an associated person.
The main home exclusion does not apply when you:
- have a regular pattern of either buying and selling or building and selling your main home
- have used the main home exclusion twice or more over the 2-year period immediately before you sold your main home.
Residential properties held in trust
Residential properties held in trust can apply the bright-line main home exclusion if the house sold was the main home of a beneficiary of the trust and one of the following conditions applies:
- the principal settlor does not have a main home
- it is the main home of the principal settlor of the trust that is being sold.
The principal settlor is the person who has made the biggest financial contribution to the trust, ie their settlements to the trust have been greatest by market value.
Talk to your tax advisor if you need advice.
3 years ago, Jason and Kevin each bought a main home
When it comes to selling their main homes, one of them has to pay tax and the other does not.
Jason is a residential property dealer and over the past 6 years, he has bought and sold 4 houses. He's always lived in the properties with his partner. Because Jason has a regular pattern of buying and selling residential property, any profit he made from selling his homes will be taxable.
Kevin sold his last main home more than 5 years ago and the one before that 10 years ago. Because this is Kevin's main home, has been for the whole time during the bright-line period, and he does not have a regular pattern of buying and selling residential property, he will not have to pay tax when he sells his main home.
Does the main home exclusion apply when you rent part of the property you live in?
Anika owns a 3-storey house that she bought after 1 October 2015. She lives on the 1st floor and rents out the other 2 floors.
If Anika sold the property within any bright-line period, she cannot use the main home exclusion because more than 50% of the property is rented out.
Deciding which is your main home when you own more than 1 property
Trevor has 2 homes. His first home is a small apartment in Christchurch, he spends 4 days a week there while he works in Christchurch.
His second home is in Wellington, where his family lives. Trevor lives in his Wellington home on the days he is not in Christchurch. He is a member of the local tramping club and is on the Board of Trustees of his son's school in central Wellington.
The Wellington home is Trevor's main home as it is the place he has the greatest connection with.