The bright-line property rule does not apply to properties acquired before 1 October 2015.
If you sell a residential property you have owned for less than 10 years you may have to pay income tax on any gain on the sale. This is the bright-line property rule and it also applies to New Zealand tax residents who buy overseas residential properties.
The bright-line property rule
The bright-line property rule looks at whether the property was acquired:
- on or after 27 March 2021 and sold within the 5-year bright-line period for qualifying new builds or within the 10-year bright-line period for all other properties
- between 29 March 2018 and 26 March 2021 and sold within the 5-year bright-line period
- between 1 October 2015 and 28 March 2018 and sold within the 2-year bright-line period.
To qualify for the 5-year bright-line period for new builds, one of the following must be satisfied.
- For an existing new build, the person must have acquired it no later than 12 months after the code compliance certificate (CCC) was issued for that new build under the Building Act 2004.
- Where the person makes an off-the-plans purchase for a new build, the CCC confirming the dwelling was added to the land must be issued by the time they sell the land*.
- Where the person constructs a new build on their land, the CCC confirming the dwelling was added to the land must be issued by the time they sell the land*.
*The CCC must be issued by the time title is transferred. This is generally also the date settlement occurs.
A remediated or converted building can also qualify as a new build in any of the following situations. If the building:
- has been removed from the earthquake prone buildings register on or after 27 March 2020, and there is proof the remediation has been completed (either in the form of a CCC being issued or local or building consent authority records show the work has been completed and verified by a suitably qualified engineer).
- has previously had weathertightness issues but has been at least 75% reclad and a CCC is issued on or after 27 March 2020 for the reclad
- has been converted from a commercial premises and a CCC is issued on or after 27 March 2020 confirming the conversion has been completed.
- has been converted from a hotel or motel and local or building consent authority records show the conversion was completed on or after 27 March 2020.
- is part of a building that contains two or more dwellings that were converted from a single dwelling and a CCC is issued on or after 27 March 2020 confirming the conversion has been completed.
ln all cases, the new build must be a self-contained dwelling and must still be on the land when it is sold for the 5-year bright-line period to apply.
Note: In cases where land has a new build and a non-new build on the same legal title, any gain on the sale of the property may need to be apportioned between the new build land and the non-new build land. Only the gain on sale in relation to the new build land qualifies for the 5-year bright-line period.
When a property is acquired
For tax purposes, a property is generally acquired on the date a binding sale and purchase agreement is entered into (even if some standard conditions like getting finance or a building report still need to be met). Full information on when a property is acquired is found in 'QB 17/02' on our Tax technical website.
The date you acquire property determines which bright-line period applies - whether it is for 2, 5 or 10 years.
This will also determine which set of rules relating to the main home exclusion will apply to your property.
In any case, the bright-line period is generally counted from the date you bought the property which is the date the property’s title is transferred to you (generally the settlement date) and ends when you enter into a binding sale and purchase agreement to sell the property. For properties acquired off the plan, different rules apply.
Please note that a property acquired on or after 27 March 2021 is treated as having been acquired before 27 March 2021, if the purchase was the result of an offer the purchaser made on or before 23 March 2021 and that offer could not be withdrawn before 27 March 2021. This means that the 5-year bright-line period applies.
Selling residential property after the bright-line period ends
The bright-line property rule does not apply if you sell a property outside the applicable bright-line period. But other property sale rules will still apply when you:
- bought the property and you had a firm intention to sell it
- you have a pattern of buying and selling or building and selling your main home
- or a person you’re associated with are in the business of property dealing, developing or building and the property was bought for the business.
Residential land withholding tax (RLWT)
If you're an offshore RLWT person and have a sale subject to the bright-line property rule, a withholding tax will be deducted at the time of the sale unless a valid certificate of exemption is held.
The residential land withholding tax (RLWT) should be deducted at the time of sale by your conveyancer. There is no automatic main home exclusion for offshore persons.
Exemptions and other relief
Generally, the bright-line property rule does not apply to a sale of property that has been your main home. It also does not apply to a sale of inherited property or if you're the executor or administrator of a deceased estate.
There are different rules that apply to your main home depending if it was acquired before, or on or after 27 March 2021.
Other relief is available for certain types of transfers:
Interpretation Statement (IS) 22/03 considers whether the land sale rules in the Income Tax Act 2007 apply to changes to co-ownership of land and changes of trustees of a trust:
Bright-line residential property sale information form
Complete this if you had a bright-line property sale during the year and you're showing the income from the sale in your tax return.
To work out if you may have to pay income tax on a property sale, use our property decision tool.
Use this decision tool to help you work out if the property you are buying or selling is taxable under any of the property rules.Go to this tool