Are you thinking of buying or selling a rental property?
It pays to be aware of the bright-line rules and determine if it will apply to you – especially if you are considering selling your property before 1st July 2024.
From July 1st 2024, the New Zealand bright-line rule is changing.
If you buy and sell a residential property, you may have to pay tax on the gain you’ve made.
For properties sold before 1 July 2024, the current bright-line periods will continue to apply as follows:
- Properties purchased on or after 1 October 2015 through to 28 March 2018, are subject to the bright-line rule if they were sold within 2 years.
- Properties purchased on or after 29 March 2018 through to 26 March 2021, are subject to the bright-line rule if they are sold within 5 years.
- Properties purchased on or after 27 March 2021 and 30 June 2024, are subject to the bright-line rule if they are sold within 5 years for qualifying new builds or within 10 years for other residential property
UPDATE: For properties sold on or after 1 July 2024, the bright-line property rule will only apply if the property is sold within 2 years of purchasing it.
When does the bright-line period start?
The date of the registration of the transfer of title (usually the settlement date).
When does the bright-line period end?
Generally, the end date for the bright-line period is the date you enter into an agreement to dispose of the property, rather than the date the title transfers to the new owner(s). This is usually the date you enter into a sale and purchase agreement.
Main home exclusion
If you buy and sell your main home, the brightline rule will not apply. It’s an exclusion to the bright-line rule.
If the property has been your main home for more than 50% of the time you have owned it, it will also fall into the main home exclusion, however you can only have one main home at a time.
Note: you can only use the main home exclusion twice over any two-year period, immediately before you sold your main home.
Trust
If the property is owned under a trust this can in some instances impact the ability to use the main home exemption.
Offshore person
If you are an offshore person and the sale of your property is captured by the bright-line rule, your lawyer or conveyancing agent is required to withhold RLWT (Resident Land Withholding Tax) and pay this to Inland Revenue. Depending on the ownership structure, the RLWT rate is the lesser of 33% (Company ownership structure = 28%) of the gain, or 10% of the gross sale price. If the RLWT is more than your usual tax rate, you will receive a refund of any overpayment when you file your tax return.
Inheritance
You won’t be taxed on any gains you have made in relation to selling a property within the 2, 5 or 10 year period which you have directly inherited or had transferred to you under a will.
Overall, if the IRD classify you as buying and selling property with the intent of deriving income, the gain you derive will be deemed income which is included and taxed in your tax return.
As always, our advice is to check with your accountant or contact us to discuss your specific situation.
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