The bright-line property rule does not apply to properties acquired before 1 October 2015.
If you sell a residential property you have owned for less than 10 years you may have to pay income tax. This is the bright-line property rule and it also applies to New Zealand tax residents who buy overseas residential properties.
The bright-line property rule
The bright-line property rule looks at whether the property was acquired:
- on or after 27 March 2021, and sold within the 10-year bright-line period
- between 29 March 2018 and 26 March 2021, and sold within the 5-year bright-line period
- between 1 October 2015 and 28 March 2018, and sold within the 2-year bright-line period.
Please note that the government has indicated that new builds will continue to be subject to a 5 year bright-line period. Before this can be legislated, what is considered a 'new build’ is still to be consulted on. The Government intends for the legislation to be retrospective so that new builds acquired on or after 27 March 2021 will continue to be subject to a 5-year bright-line period.
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). Full information on when a property is acquired is found in 'QB 17/02' on our Tax technical website.
The date you acquire property determines whether the bright-line period is 2, 5 or 10 years.
This will also determine which set of rules relating to the main home exclusion and change of use will apply to your property.
In any case, the bright-line period is generally counted from the date you bought the property which is the date the land is transferred to you (generally the settlement date) and ends when you enter into a binding sale and purchase agreement to sell the property.
Please not that a property acquired on or after 27 March 2021 will be treated as having been acquired before 27 March 2021, if the purchase was the result of an offer the purchaser made on or before 23 March 2021 that could not be withdrawn before 27 March 2021. This means that the 5-year bright-line test applies.
Selling residential property after the bright-line period ends
The bright-line property rule does not apply if you sell a property outside the applicable bright-line period. But other property sale rules will still apply when you:
- bought the property and you had a firm intention to sell it
- 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 bought for the business.
Residential land withholding tax (RLWT)
If you're an offshore RLWT person and have a sale subject to the bright-line property rule, a withholding tax will be deducted at the time of the sale unless a valid certificate of exemption is held.
The residential land withholding tax (RLWT) should be deducted at the time of sale by your conveyancer. There is no automatic main home exclusion for offshore persons.
Exclusions to the bright-line property rule
Generally, the bright-line property rule does not 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.
There are different rules that apply to your main home depending if it was acquired before, or on or after, 27 March 2021.
When you sell property, the bright-line rule does not apply to your main home, inherited property, if you're the executor or administrator of a deceased estate.
Bright-line property sale information form
Complete this if you had a bright-line property sale during the year and you're showing the income from the sale in your tax return.
To work out if you may have to pay income tax on a property sale, use our property decision tool.