Bright-line is a super complex tax on some residential property.
The constantly changing landscape of the bright-line rules and the many carve outs means people are increasingly needing to get specialist advice before they sell their properties.
The rules are complicated and different sets of rules could apply depending on when you purchased. Generally speaking, the triggers are based on when a property is purchased and when it is sold but under the test not all sales are treated the same.
The bright-line rules are strict. They don’t make any allowance for unexpected changes in personal circumstances.
And the goal posts just keep moving.
Initially based on a two-year period when first established in 2015, the rules were changed again in 2018 to a five-year period, and then again in 2021 to a 10-year period, with most new-builds remaining at five years. If you sell during this period, you could be liable to pay tax on any capital gain.
As a New Zealand tax resident, bright-line also applies to any overseas property you own.
There are several exclusions to the bright-line test but the most common is where the property you are selling is your main home. This exclusion can become complicated though if you own multiple houses; if you purchased the land and later built a home on it; or if your property is owned in a trust.
The main home exclusion cannot be used if you have already used the exemption twice or more in a two-year period; if there is a regular pattern of buying and selling your main home; or if you haven’t lived in the property for at least 50 percent of the time.
A change of government could well bring further changes and the current sentiment of the main parties at the time of writing looks like this:
- Labour – no change
- National – revert back to two-year test
- Act – abolish the test altogether
- Green – wealth tax on net assets over $2 million (no comment as yet on bright-line)
- NZ First – no comment to date
We’ve said it before, the rules are super complex, so please make sure you get expert advice before you put your property on the market.