Everything property investors need to know about the bright-line

bright-line rule update july 1 2024 article banner

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.

About Kiwitax – Award winning business improvement, tax and accounting service

Here’s the thing. As a businessrental property owner or start-up, you get a kick out of having your own gig. But chances are dealing with your tax and accounting leaves you cold. Good news! We love it, so hand it over to Kiwitax and we’ll look after it all for you.

Whether you deal with us online, by phone or drop into our Napier office, you’ll find a friendly, professional hardworking team ready to work with you, however you keep track of your financial information and from wherever you do business. And all for a fixed price. It takes just two minutes to get a quote.

Plus if you’re at a loss to know how to improve aspects of your business – from growth planning to cashflow management, even tax debt and so much more – we’re all over that too. Our Business Improvement advisors can help you make a plan and put it into action.

Kiwitax are a preferred training provider for Business Improvement services through the Regional Business Partner Network Capability Voucher Scheme. This is a government funded scheme designed to boost business capability by providing funding of up to 50% of approved training programs with specified training providers up to a maximum value of $5000.

If you liked this article and want to make improvements in your business, with quarterly coaching sessions specifically tailored to support you to identify and achieve your business goals, lets chat!

Facebook
X
LinkedIn