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The Brightline test is a way to tax the profit made when people buy and sell residential property for a profit. It’s just like paying tax on any other income you might make. This also applies to New Zealand tax residents who buy and sell residential properties overseas.
The tax payable is calculated at the property owner’s tax rate on the difference between the sale price and the original purchase price, less any expenses incurred while owning the property such as rates, insurance premiums, mortgage interest, repairs and maintenance.
The Brightline test in New Zealand has undergone significant changes as of 1 July 2024. Following are the key updates.

Reduction of the Brightline Period

The Brightline period has been reduced from ten years to two years. This means that if you sell a residential property within two years of purchasing it, you may need to pay tax on any profit made from the sale. For property sold on or after 1 July 2024, the brightline test looks at whether your brightline end date for the property is within 2 years of your brightline start date.

For property sold before 1 July 2024, different timeframes apply.

Main Home Exclusion

The main home exclusion remains in place. This means that if you sell your main home, the Brightline test generally does not apply. However, you must use more than 50% of the property’s area as your main home and live in it for more than 50% of the time you owned it.

Rollover Relief

New rollover relief rules have been introduced for associated persons, including associated companies, relatives, trusts, and partnerships. This relief is limited to situations where the transferor and transferee are associated for two years before the transfer.

Under the new rules, rollover relief applies where property is transferred:
• From an individual to a trust;
• From a trust to its settlor where the trust originally settled the purchase; and
• Between “associated persons” – refer to associated persons as defined in Inland Revenue’s Associated person’s guide IR620 https://www.ird.govt.nz/managing-my-tax/associated-persons

In addition to the old rules, which include property transferred:
• From a deceased estate to a beneficiary of the estate as inherited property;
• Under a relationship property agreement; and
• From a trust to its settlor if the settlor originally settled the purchase.

Exceptions

Exceptions for main homes, separation/relationship property transfers, some transfers to trusts, and receiving a property via inheritance from an estate remain in place.

These changes aim to simplify the Brightline test and make it more consistent with its original intent when first introduced.

Example

Aroha bought an investment property in April 2022. Under the previous brightline rules Aroha would have to pay tax on any profit made from the sale of the property if she sold the property before April 2032.
Now under the new brightline rules, instead of waiting until April 2032 to sell the property without incurring any tax on the profit, Aroha’s obligation ends on April 2024.

Aroha can now consider reinvesting the proceeds into other investment properties or investment opportunities sooner than expected, in turn accelerating the growth of her investment portfolio.

This example demonstrates the benefits for property investors.