Bright-Line test to be extended

Revenue Minister Stuart Nash has confirmed the bright-line test on residential property sales will be extended from two years to five years. The objective of the extension is to ensure speculators pay tax on the gains from property speculation and improve housing affordability for owner-occupiers by reducing demand from speculators. Whether the later objective will be achieved is anyone’s guess, but the extension will influence when vendors bring properties (other than their main home) to the market.

The extension to the bright-line test will apply to agreements to purchase residential investment property entered into from the date receives the Royal assent. This is expected to be in March 2018.

The proposed five-year bright-line test has the same structure and design features as the two-year bright-line test, include the following:

  • The five-year period for the bright-line test runs from the date of settlement to the date a person enters into an agreement to sell the property. An additional rule applies for sales “off the plan”.
  • The bright-line test only applies to residential land. Residential land includes empty land planned to be used for residential purposes but excludes business premises and farmland.
  • The bright-line test does not apply to a person’s main home. A person can only have one main home. The main home exception is available to properties held in trust. There are exceptions for relationship property and inherited property.