A property will not be taxable under the bright-line property rule if you meet one of the following exclusions:
- it's your main home and your use meets certain criteria
- you have inherited the property, or
- the property was transferred on the death of a person to the executor or administrator of the estate.
Other relief is available for certain types of ownership transfers:
If you need help to work out if your property sale is excluded from the bright-line property rule, talk to a tax advisor.
The main home exclusion
Your 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 you have the greatest connection to.
More than 50% of the property’s area must be used as your main home for the main home exclusion to apply. This includes the yard, gardens and garages.
It's important to note that having the intention to use the property as your main home is not enough, you must have actually used it for this purpose.
If part of your main home was used for other purposes and that uses more than 50% of the property's area the main home exclusion will not apply and you will pay tax on any profit when you sell it. For example, if you use 40% of a property as your main home and rent out 60% as a granny flat, you cannot use the main home exclusion if you sell that property.
However, if you acquired the property on or after 27 March 2021, then you will only pay tax on any gain on sale relating to the non-main home portion of the land.
The main home exclusion may also apply if you’re a:
- trustee of a trust and one of the trust's beneficiaries lives in the property and other conditions are met
- 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
- did not use it as your main home for the time required during the bright-line period. The amount of time it is required to be used 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).
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 ends when you enter into a binding sale and purchase agreement to sell the property.
Selling a property used as your main home that was acquired on or after 27 March 2021
If you used your property as your main home 100% of the time during the bright-line period, the main home exclusion will apply. When you sell, you will not pay tax on any gain on the sale.
If your main home was not used as your main home for any continuous period or periods of more than 12 months during the bright-line period, the main home exclusion will not apply to the period(s). You’ll pay tax on the portion of the gain on sale that relates to the period(s). This is the ‘change-of-use’ rule.
For example, an owner sells a property 6 years after the start of the bright-line period and during that 6 year bright-line period they had moved out and rented it for 15 months, while they worked and lived overseas. Any profit will be split between the 15 months and remaining 57 months during the bright-line period. Tax will be payable on the amount of gain on sale apportioned to the 15 month period.
If the property has not been used as your main home for a continuous period or periods of 12 months or less 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.
For example, an owner takes a few months to move into a property, or owns it for a few months after moving out, the main home exclusion continues to apply for those months.
Selling a property used as your main home that was acquired before 27 March 2021
If you used your property as your main home for more than 50% of the time during the bright-line period, then the main home exclusion will apply. You will not pay tax on any profit when you sell it.
If you live in more than 1 property
If you own and live in more than 1 property, you must decide which is your main home. To decide if a property is your main home, think about:
- where your personal property is kept
- the amount of time you spend living in each property
- where your immediate family lives
- where your social ties are strongest
- your use of the home
- what other ties such as employment, business, economic you have with the community.
A main home held in trust
Residential properties held in trust can use the main home exclusion if the house sold was the main home of a beneficiary of the trust and one of the following conditions apply:
- 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.
Inheriting a residential property
Property which is inherited does not come under the bright-line property rule when it's sold by the person who inherited the property. However if any part of the property is acquired other than by inheritance it may be subject to bright-line.
Paul and Mel are each left a half-share in a residential property.
Mel sells her half-share to Paul at market value on 12 April 2019. Paul is now the only owner of the property.
He sells this property on 15 March 2020. Because he has sold the property within 5 years of buying Mel's half-share - he will pay tax on 50% of any gain he makes on the sale.