Bright-line extension announced
The Minister of Revenue announced an extension to the bright-line test to help keep the property market under control. If you are thinking about buying or selling rental properties or your holiday home, there are several implications you’ll need to consider before taking action.
The property market is still very buoyant which makes it very attractive to sell, especially if you have a number of properties in your portfolio.
If you’re not familiar with the bright line test, it presents potential tax issues if you’re selling a residential rental property that you’ve owned for less than two years. It also applies to holiday homes sold under the same conditions. Your primary residence is exempt.
Extending the test period
The extension for the bright line test period goes from two to five years. It took effect from 29 March this year. If you’re thinking about selling a property purchased before this date, the two year period applies.
Inland Revenue generally considers the beginning and end dates to be the date of registration of the purchase and the date on the sale and purchase agreement for change of ownership.
Seek legal advice if you’re selling
To avoid getting lumbered with an unexpected tax liability, speak with our property lawyers if you are selling a property within two years of purchasing it. IRD has strictly enforced and complex rules around the sale of these properties. Recently, some sellers have found they’re liable to pay tax on the sale because they haven’t understood the timeline. You’ll also now need to consider whether your property is covered by the two year rule or the five year rule.
Talk to our property lawyers if you have any questions.