Proposed extension to 10 years, excluding new builds, and changes to the treatment of times when the property is not the owner's main home.
Read the fact sheet that summarises changes the Government intends to make to the taxation of residential property. Once legislation is enacted, more details will be available at ird.govt.nz/property
Extension of the bright-line test to 10 years
The bright-line test means if you sell a residential property within a set period after acquiring it you will be required to pay income tax on any profit made through the property increasing in value. The current bright-line period is 5 years. The Government has announced it intends to extend the bright-line period to 10 years for residential property except newly built houses (new builds). Inherited properties and those which have been the owner's main home for the entire time they owned it will continue to be exempt from all bright-line tests.
To determine what length of bright-line test a property is subject to, use the flow-chart that can be found on the fact sheet.
What the proposed changes mean for you
What the proposed changes mean for you if you acquire a residential property on or after 27 March 2021.
If you sell the property more than 10 years after acquiring it (or 5 years for a new build), you will not pay tax under the bright-line test on any gain in value.
If you sell the property within 10 years of acquiring it (or 5 years for a new build), and it was your main home for the entire time you owned it, you will not pay tax under the bright-line test on any gain in value. However, if the property was your main home, but was used for other purposes for more than 12 months during the time you owned it, you must pay income tax on the profit from the gain in value of the property apportioned based on how long it was not your home.
If you sell the property within 10 years of acquiring it (or 5 years for a new build), and it was never your main home for the entire time you owned it, you will pay tax under the bright-line test on any gain in value.
Any profit from a gain in property value that is considered taxable income (including under any of the bright-line tests) will also affect any other obligations or entitlements you have based on taxable income, such as student loan repayments, child support payments, and Working for Families. This effect would be in the year you need to include the income on your tax return.