What is the bright-line test and will I pay tax if I sell my property within 2 years?

The bright-line test is New Zealand's rule that may require you to pay income tax on any profit you make from selling residential property within a specified period. From 1 July 2024, the bright-line period has been reduced to 2 years.

How it works:

If you sell residential property and your bright-line end date (generally the date of the sale agreement) is within 2 years of your bright-line start date (generally the date you acquired the property), you must pay income tax on any profit at your marginal tax rate.

Transition rules for earlier purchases:

Main exclusions from the bright-line test:

• Main home exclusion - The property was your primary residence and you used more than 50% of the property as your main home for more than 50% of the time you owned it
• Inherited property - You inherited the property (the bright-line test generally does not apply)
• Relationship property settlements - Transfers between partners due to a relationship separation

How tax is calculated:

The taxable amount is the difference between the sale price and the purchase price, adjusted for certain costs. The profit is added to your other income and taxed at your marginal rate (up to 39%).

Important: Even if the bright-line test does not apply, other rules (such as the intention test) may still require you to pay tax if you bought the property intending to resell it for profit.