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24 January 2018

The Brightline Test

Since 2015, the Brightline Test has imposed a new tax on gains made from the sale of residential property. If you are thinking of buying or selling property, these new tax rules may apply to you.

Prior to the introduction of the Brightline Test, buried in New Zealand’s tax laws were 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 Brightline Test.

Key Points

The key points of the Brightline Test are:

  • the Brightline Test only applies to agreements to buy and sell residential land (ie: land that has a dwelling on it) entered into after 1 October 2015;
  • It will also apply to sales of land where there is an arrangement to build a dwelling on that land;
  • the timeframe:

a. the start/purchase date – this will generally be the date upon which transfer of the property is registered at Land Information New Zealand;

b. the end/sale date – this is the date upon which an agreement for sale and purchase is signed. It is not the date of registration of the transfer on sale. Different rules may apply in some circumstances, however.


Essentially, if you buy a property after 1 October 2015 and sell it again within two years of the date you purchased it, any gains you make on selling the property will be taxable, regardless of your intention when you purchased it.  That is, unless you can prove you fall within certain exceptions.

Exceptions to the Brightline Test

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

  • the property was your main home (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 Brightline Test applies in conjunction with the intention test.  This means that even if you sell the property after the two year timeframe in the Brightline 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 will not matter how long you hold on to the property, any gain on the sale will be taxable.


The intention test is highly subjective and has traditionally been difficult to enforce.  The Brightline Test, on the other hand, is unambiguous and objective.  Already, the new Labour Government have signalled that they intend to extend the two year timeframe in the Brightline Test to five years.

If you have any questions about taxes on your property transaction we recommend that you seek advice from a specialist tax practitioner, not just your legal advisers.  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 circumstance.



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