New Zealand's bright-line test taxes gains on residential property sold within a set number of years of purchase. Enter your purchase date, sale date, and property details below to find out whether the test applies to your situation, which version of the rules governs your sale, and an estimate of any tax that would be owed on the gain. The main home exclusion is applied where applicable.
The bright-line test was reduced back to 2 years for all properties sold on or after 1 July 2024. If you are selling now, this is the rule that applies regardless of when you bought the property.
The bright-line test has changed several times since it was introduced in 2015. The rule that applied to any given sale depended on when the property was acquired and when it was sold. For sales on or after 1 July 2024, the current 2-year rule applies to all residential property regardless of when it was purchased.
| Sale Date | Bright-Line Period | Notes |
|---|---|---|
| Before 1 October 2015 | No bright-line test | No bright-line rules existed |
| 1 October 2015 to 28 March 2018 | 2 years | Original bright-line test introduced |
| 29 March 2018 to 26 March 2021 | 5 years | Extended to 5 years for most residential property |
| 27 March 2021 to 30 June 2024 | 10 years | Extended to 10 years; new builds subject to 5-year rule |
| 1 July 2024 onwards (current) | 2 years | Reduced back to 2 years for all properties |
The most important exemption to the bright-line test is the main home exclusion. If the property was your main home for the entire period you owned it, the bright-line test does not apply regardless of how long you owned the property for. Your main home is the property where you primarily live - you can only have one main home at a time.
If the property was your main home for only part of the ownership period (for example, you rented it out for a year before selling), the bright-line test applies to the portion of the gain that relates to the non-main-home period. This is called the change of use rule. The taxable portion is calculated proportionally based on the time the property was not your main home as a percentage of the total ownership period.
Any gain subject to the bright-line test is treated as income in the year of sale and taxed at your marginal income tax rate. It is added on top of your other income for that year, which may push you into a higher tax bracket. The gain must be included in your individual tax return (IR3) for the year in which you disposed of the property.
The taxable gain is generally the difference between what you sold the property for and what you paid for it (your cost base). You can also include certain costs in your cost base such as legal and valuation fees paid on acquisition, and any capital improvements made to the property that were not already claimed as a deduction. Selling costs such as real estate agent commission can be deducted from the sale proceeds.
The bright-line test applies to residential land only. Farmland and commercial property are generally not subject to the bright-line test. However, other provisions of New Zealand tax law may apply to gains on these properties, particularly if they were purchased with an intention of resale (the intention test). If you are selling farmland or commercial property, you should seek specific tax advice.
Under the rules that applied between March 2021 and June 2024, new builds were subject to a 5-year bright-line period rather than the 10-year rule that applied to existing residential properties. From 1 July 2024, this distinction no longer matters as the rule is uniformly 2 years for all properties.
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