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If you receive a property as part of a relationship property agreement, you will not pay tax on the property when it's transferred to you.

However, if you later sell the property within the bright-line period of 2, 5 or 10 years that applies from the date it was first acquired in the former relationship, you will pay income tax on any gain you make unless it is your main home.

The bright-line property rule may also apply if you transfer a share in the property to a new partner. If you both, as joint owners, sell the property within the bright-line period your partner may have to pay tax on the profits of their share if the property is not their main home.

The bright-line property rule

Example: Emily and Carl's property transferred to Carl

After saving for 5 years, Emily and Carl purchased their first investment property in November 2015. Twelve months later they separated. In May 2017 the property is transferred into Carl’s name as part of their relationship property agreement. In July 2017 Carl sells the property for more than the original purchase price.

The transfer of Emily’s share to Carl in May 2017 has no tax liability. Carl’s subsequent sale does have a tax liability as the sale is within 2 years of the original acquisition of November 2015.

Example: Sam gives Bobby a half-share in his main home

When Sam and his partner Jenny split up in 2016 their rental property was transferred to Sam as part of the relationship property agreement.

On 7 November 2018 Sam decided to transfer a half-share in the property to his new partner Bobby. Bobby has another home that is her main home. On 7 May 2019 they decided to sell the property.

Because Bobby had owned her share of the property for only 1 year which is less than the applicable bright-line period of 5 years, and it was not her main home, she will have to pay income tax on her share of the profit from the sale.

As the property was Sam’s main home he does not need to pay tax as the main home exclusion applies to his share.

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