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The bright-line test works differently for property sold before 1 July 2024. The date you acquired the property decides which bright-line period to use (5 or 10 years) and which main home exclusion criteria to use.

When a property is acquired

For tax purposes, a property is generally acquired on the date a binding sale and purchase agreement is entered into (even if some standard conditions like getting finance or a building report still need to be met).

Bright-line periods

The bright-line test looks at whether the property was acquired:

  • on or after 27 March 2021 and sold within 5 years for qualifying new builds or within 10 years for all other properties
  • between 29 March 2018 and 26 March 2021 and sold within 5 years.

The changes to the bright-line test starting on 1 July 2024 means you no longer have to separate out new builds from all other properties. Your property sale will only come under the bright-line test if you acquired the property on or after 29 March 2018 and you are selling it within 5 years or before 1 July 2024 (whichever comes first).

Bright-line start and end dates

For a standard purchase of property, the bright-line period starts from the date the property’s title is transferred to you, generally the settlement date.

For a standard sale, the bright-line period ends when you enter into a binding sale and purchase agreement to sell the property.

Different rules apply for other types of purchase, for example off the plan, and for other types of sale or disposal, for example when property is gifted.

Main home exclusion

The bright-line test does not tax the sale of a property that has been your main home.

Different criteria apply to your main home depending if you acquired it before, or on or after 27 March 2021.

Ownership transfers and rollover relief

From 1 April 2022 until 30 June 2024, the following changes in legal ownership qualify for rollover relief:

  • transfers to or from look-through companies and partnerships
  • certain transfers to or from qualifying family trusts
  • transfers within tax consolidated groups of wholly-owned companies.
  • certain transfers of land subject to Te Ture Whenua Māori Act 1993 and transfers as part of settling Te Tiriti o Waitangi - Treaty of Waitangi claims.

Whether full rollover relief, no tax to pay, or partial rollover relief, some tax to pay, applies to these new categories depends on whether payment is made for the transfer and if so, how much.

No relief for transfers from parents to children

Rollover relief does not extend to parents helping their children own their first home. If parents are co-owners and later sell their share to their children, the bright-line test applies. 

Example: Gifting a property to a child

James and Sam bought a home for their daughter Emma and her partner Frankie using the equity in their own home. Emma and Frankie were responsible for all outgoings and maintenance and planned to buy it themselves eventually.

A separate bank account was set up for the mortgage repayments.  Emma and Frankie paid the mortgage.  Any equity gained in the property was for Emma and Frankie. 

James and Sam gifted the property to Emma and Frankie after 18 months and within the 2 year bright-line period. James and Sam were the legal owners of the property. Because they were not living in the home they cannot claim the main home exclusion. 

The transfer of ownership is at market value and because the bright-line test applies, any profit on sale is taxable.

Co-ownership of property

For information about co-owned land and what happens when you change between joint tenancy and tenancy in common, acquiring and removing additional shares in the same land, and subdividing co-owned land.

Bright-line test and co-ownership

Tax Technical advice

Find detailed examples in QB 17/02 on our Tax Technical website.

QB 17/02 Income tax - date of acquisition of land, and start date for 2-year bright-line test

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Last updated: 03 Jul 2024
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