• Facebook
  • Twitter
  • Youtube
  • LinkedIn
Parry Field Lawyers
  • Home
  • About
    • News
    • Terms of Engagement
  • Our People
  • Services
    • Property
      • Residential
      • Construction
      • Subdivisions
      • Commercial
      • Leasing
    • Advisory
      • Employment
      • Sale & Purchases
      • Financing
      • Governance
      • Technology/IT
      • Capital Raising
    • Disputes
      • Employment
      • Court, Tribunals and Arbitrations
      • Estates & Wills
      • Divorce & Separation
      • Insurance
      • Family
      • Company & Shareholding
      • Debt Collection
      • Construction
    • Trusts & Asset Planning
      • Wills & Enduring Powers of Attorney
      • Estates
      • Succession Planning
    • Charities/For Purpose Organisations
      • Incorporated Societies: Information Hub
      • Charities: Information Hub
      • Faith Based Groups: Information Hub
      • Impact Investing: Information Hub
      • Hybrid Solutions: Charity/Business
      • Not for Profits
      • Churches
      • Sports Groups
      • Social Enterprises/Impact Companies
      • Community Groups
    • Immigration
      • Work Visas
      • Family Visas
      • Skilled Migrants
      • Business and Investment Visas
      • Potentially Prejudicial Information
      • Employer Assistance
      • Overseas Investment
  • Resources
    • Guides
      • Capital Raising Guide
      • Resources for the Incorporated Societies Act 2022
      • Doing Business In New Zealand
      • Start Ups Legal Toolkit
      • Buying & Selling Property
      • Charities In New Zealand
      • Social Enterprises in New Zealand Handbook
      • Family Trusts
      • Death & Estates
      • Churches Handbook
      • COVID-19 Legal Handbook
    • Articles
      • Heat of the moment resignations – do employees need to be given a chance to cool off?
      • The new Incorporated Societies Act 2022: When will the new Act affect my Society?
      • Racial Harassment in the Workplace
      • Built up annual leave – does an employee have to use it?
      • Resources for the Incorporated Societies Act 2022
      • When can a Trustee delegate their powers?
      • Buying your first home: Key issues (a practical guide from a first home buyer)
      • The new Incorporated Societies Act 2022: What it means for your Incorporated Society
      • The Addington Farm: A case study in setting up a Charity
      • The Bright-Line Test
      • Funds that advance charity: How do they work? 
      • What is a LIM?
      • Charity Founders’ Ongoing Relationship With The Charity They Start: Key points to know
    • Blog
    • Templates
      • Terms and Conditions
      • Terms and Conditions Including Software
      • Non-Disclosure Agreement – One Way
      • Non-Disclosure Agreement – Two Way
      • Independent Contractors Agreement
      • Shareholders’ Resolutions – Written resolution
      • Share Transfer
      • Incorporation – First Shareholder Resolutions
      • Incorporation – First Directors’ Resolutions
    • Videos
      • COVID-19 and Commercial Leases
      • Force Majeure” clauses in Contracts and COVID-19
      • Property sale and purchases and COVID-19
      • Seeds Podcast
  • Careers
  • Contact
    • Healthcheck
  • Pay Online
  • Search
  • Menu Menu

The Bright-Line Test

Property

The most recent Government amendments to the bright-line test now makes the bright-line rules applicable to many more individuals. In this article, we will touch on the rules you need to be aware of when purchasing residential property and whether the bright-line test will apply to you.

What is the “bright-line” test?

The bright-line test is a rule in the Income Tax Act 2007 aimed at taxing financial gains made on residential investment properties that are sold within the bright-line period.

On 23 March 2021, the bright-line period was extended from five years to 10 years. This means that many residential properties, if disposed of within 10 years of acquisition, will be subject to income tax on any profit made.

Any property acquired before 27 March 2021 will still fall under the previous rules, with tax potentially being imposed on properties disposed of within 5 years of acquisition.

Will my Property be Subject to the Bright-Line Rules?

It is important to be aware of whether your property will be subject to income tax under the bright-line rules, as well as consider the implications so that there are no surprises when you come to sell.

We list the following which are common exemptions/exclusions to the bright-line rules:

  • When a property is a main home;
  • When property is inherited; or
  • If you are an executor or administrator of a deceased estate.
Old Rules – Main Home

Under the old rules properties will not be subject to the bright-line rules if they have been your main home for more than 50% of the time you have owned the property within the relevant bright-line period.

Inland Revenue has clarified that a main home is where you have lived most of the time. Therefore, you must actually had to have lived at the property for this exemption to apply.

For residential properties that were acquired between 29 March 2018 and 27 March 2021, a bright-line period of 5-years applies.

New Rules – Main Home

Properties acquired after 27 March 2021 will be subject to the extended bright-line period of 10 years, unless the main home exemption applies. However, the rules for the main home exemption have changed. Where the property is not used as your main for one or more periods of 366 days or more, while you own it, you will be required to pay tax on a proportion of the increase in the value of the property that matches the proportion of time that you owned the property and (for 366 or more consecutive days) were not living in the home as your main home.

Do the same Rules Apply to Newly Built Properties?

Newly built properties are still subject to the bright-line rules, however Government has excluded new builds from the most recent law changes. Therefore, new builds continue to be subject to the 5-year bright-line rules as discussed above. Government has provided some clarity regarding what constitutes a ‘new build’ by confirming that property which clearly increases residential housing will qualify as a new build.

Who can I Contact for Assistance with my Property Matters?

Our team at Parry Field have designed a helpful flow chart to assist you in determining whether your property will be subject to the bright-line rules. For further clarification, we suggest that you engage a tax specialist or one of the property lawyers at Parry Field Lawyers who would be more than happy to provide personalised advice.

For more information you can contact Luke Hayward lukehayward@parryfield.com or Maria Hayes mariahayes@parryfield.com at Parry Field Lawyers.

https://www.parryfield.com/wp-content/uploads/2020/04/Beach.jpg 1371 2048 Sarah Heron https://www.parryfield.com/wp-content/uploads/2019/07/Parry-Field-Lawyers-Logo.png Sarah Heron2021-11-11 15:15:382021-11-11 15:15:38The Bright-Line Test

Related Lawyers

Luke Hayward
Email Luke
+6433488480
View Profile
View Profile

Christchurch CBD

PHONE: +64 3 348 8480
FAX: +64 3 348 6305

PHYSICAL ADDRESS:
Level 1, 60 Cashel Street
Christchurch 8013, New Zealand

POSTAL ADDRESS:
PO Box 744
Christchurch, 8140, New Zealand

Christchurch

PHONE: +64 3 348 8480
FAX: +64 3 348 6305

PHYSICAL ADDRESS:
1 Rimu Street, Riccarton,
Christchurch 8041, New Zealand

POSTAL ADDRESS:
PO Box 8020, Riccarton,
Christchurch, 8440, New Zealand

Rolleston

PHONE: +64 3 348 8480
FAX: +64 3 348 6305

PHYSICAL ADDRESS:
Level 1, 80 Rolleston Drive,
Rolleston, 7614, New Zealand

POSTAL ADDRESS:
PO Box 8020, Riccarton,
Christchurch, 8440, New Zealand

Hokitika

PHONE: +64 3 755 8673
FAX: +64 3 755 8073

PHYSICAL ADDRESS:
26 Weld Street,
Hokitika 7810, New Zealand

POSTAL ADDRESS:
PO Box 44,
Hokitika 7842, New Zealand

Parry Field Charitable Foundation

Parry Field charitable members of NZ LAw, Global Cross Legal and SCLA

© Copyright – Parry Field Lawyers     |     Privacy Policy

A brief guide to the philanthropic sector and grant-seeking in Aotearoa NZThe Start-up Roadmap: Key questions to ask before you dive in on your dream
Scroll to top