Most New Zealanders are aware if they acquire and dispose of land within a certain period of time, tax may be payable to Inland Revenue. The tax, commonly referred to as ‘Brightline Tax’ was introduced via the Brightline rules by the National Government in October 2015 as an attempt to ensure property speculators paid their fair share of tax.
At the time of introduction, some residential property owners had to pay tax on gains made when selling their property if they had bought and sold the property within two (2) years. That timeframe was extended to five (5) years in 2018. Then in 2021 the Labour government further lengthen the time period to ten (10) years. Hence, property acquired on or after 27 March 2021 and sold within ten (10) years of its acquisition date, was liable to tax. A final change to the rules was made when national came to power this term. Effective from 1 July 2024, the national government reduced the brightline time period to two (2) years.
There are exceptions to the application of the rules. Not all property is caught by the rules. For example, property continually inhabited as a family home won’t be subject to the rules. Property transferred from a deceased estate to an executor or heir or following a relationship demise is generally exempt too.
Whilst the rules have changed considerably over time, what has remained constant is where they are applicable the gain in value a property experiences from the date of acquisition to its date of disposal is taxable.
You might think the ‘date of acquisition’ is pretty simply to determine. Surely it’s the date you settle the purchase of the property right? Wrong. The date of acquisition can be several dates under the Brightline rules. For example, it could be the date you sign the agreement for sale and purchase, the date you acquire an equitable interest in the property such as declaring the contract unconditional or the settlement date. Given the ‘date of acquisition’ starts the clock ticking for the purposes of determining the Brightline time period, its vital to understand what exactly this date is. Get this date wrong and it could cost plenty.
The second matter to be cognizant of is just because a property’s gain isn’t taxable under the Brightline rules, doesn’t mean it isn’t liable to tax full stop. The Brightline rules are but a small subset of a wide range of income tax provisions that seek to tax land sales. Prospective vendors need to be aware of this. Many individuals have been disappointed when their anticipated tax-free capital gain has resulted in tax being payable. Ultimately, ensure you procure professional advice from your accountant prior to listing a property for sale to understand any tax and/or tax consequences.
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