You are here

10 July 2018

The Bright-Line Test

Since October 2015 the Bright-Line Test has imposed a new tax on gains made from the sale of residential property. Before you sell your property, particularly an investment property, you should consider the tax consequences of selling.

Prior to 2015, New Zealand’s tax laws contained provisions that said you could be taxed on profits (or gains) made on the sale of your property (the so called “Intention Test”).  The problem was, the IRD had to prove that at the time you purchased the property you intended to sell it again.  Proving that “intention” was a bit tricky for the IRD, so the Government (and the IRD) introduced a new test (“the Bright-Line Test”).

Initially, a two (2) year timeframe, the Bright-Line Test was updated on 29 March 2018 by extending the timeframe to five (5) years.

Key points

The Bright-Line Test applies to the sale of any residential property purchased on or after 1 October 2015 as follows:

  • If you have bought a residential property between 1 October 2015 and 28 March 2018 (inclusive), then sell it within two (2) years of the date you purchased it, any gains you make on selling the property will be taxable;
  • If you have bought a residential property on or after 29 March 2018, then sell it within five (5) years of the date you purchased it, any gains you make on selling the property will be taxable. 

Tax is payable under the Bright-Line Test regardless of your intention when you purchased the property. That is, unless you can prove you fall within certain exceptions.

Exceptions to the Bright-Line Test

You will not pay tax on any gains you make in relation to a property sold within the relevant timeframe of purchase if one of the following exceptions apply:

  • The property was your main home for more than 50% of the time you owned it (unless there is a regular pattern of buying and selling); or
  • You inherited the property; or
  • The property was transferred to you after a relationship breakdown and in accordance with a Relationship Property Agreement;
  • The property was transferred to you under a Will (ie: to you as the administrator or Executor).

Intention Test

The Bright-Line Test applies in conjunction with the old intention test.  This means that even if you sell the property after the timeframes in the Bright-Line Test, you may still have to pay tax on the sale if IRD can prove you bought the property with the intention of re-selling.  If IRD can prove that intention, it does not matter how long you hold on to the property, any gain on the sale will be taxable.


The intention test has traditionally been difficult to enforce.  A person’s intentions at the time they buy may be many and varied.  In the absence of clear evidence, those intentions will be hard to prove. 

The Bright-Line Test, on the other hand, is unambiguous and objective.  If you purchase a residential property and sell it within the timeframes referred to above, you need to consider if the sale will be taxed under the Bright-Line Test.

We recommend that you seek advice from a specialist tax practitioner, not just your legal advisers, if you have any questions about taxes on your property transaction.  The most important thing is that you are aware of your likely tax obligations so that you are not caught out by surprise.


The above information is of a general nature only. You should contact our firm for advice relating to your specific circumstances.


Mark Bond

About Mark Bond

Mark is a member of our Property Team. He assists clients with various residential and commercial property transactions, including associated company and trust structuring.

View all posts by Mark Bond