Brightline – Back to the Future

Unlike a good wine, you would argue the Brightline Test hasn’t aged well – since it’s inception in 2015 we have seen a number of tweaks, exemptions and bizarre outcomes that have led most people to view it as overly complicated and arguably ineffective at creating a more stable housing market in New Zealand. The Brightline test initially started at two years, was increased to five years in 2018, and finally 10 years in 2021 (with the carve out for new builds of five years) – through this process you had properties straddling rules, peoples primary homes being caught when they relocated for work and details being built out around what constituted a new build.

Where we will now sit as of 1st July 2024 is a system closer to what was originally implemented in 2015 – a simple two year test for all property, regardless of what the rules were at the time of purchase.

Also changing is the Main Home exclusion to a simpler two-part test:

• 50% or more of the property’s area is used as your main home 

• Use the property as your main home for more than 50% of the time you owned it (construction time will not be included in determining usage %).

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The rollover relief rules will also be extended to the associated person rules. This includes: 

• associated companies, or a person and an associated company 

• relatives (within 2 degrees of relationship) 

• trusts and settlors, beneficiaries, and related trusts 

• a partner and a partnership

• a look-through company and an owner of that company
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These new rules will be limited to situations where the transferor and the transferee are associated for two years before the transfer. You will only be able to claim rollover relief once in any two-year period.

There are still situations where property sales would be treated as taxable under other provisions in the Income Tax Act, and this is sure to be an area of focus for the IRD with their additional resources – so if in doubt reach out to have a chat.

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