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In the dark about the Brightline test?

There has been some confusion surrounding the Brightline test, announced by the government.

The Brightline test affects “Anyone buying and selling residential property on or after 1 October 2015”. If you sell a residential property you have owned for less than 10 years you may have to pay income tax.

If you acquired residential property:

  • on or after 27 March 2021, and sold within the 10-year bright-line period.

  • between 29 March 2018 and 26 March 2021, and sold within the 5-year bright-line period.

  • between 1 October 2015 and 28 March 2018, and sold within the 2-year bright-line period.

The bright-line property rule does not apply if you sell a property outside the applicable bright-line period. But other property sale rules will still apply when you:

  • bought the property intending to sell it.

  • you have a history of buying and selling or building and selling your main home.

  • a person you’re associated with are in the business of property dealing, developing or building and the property was bought for the business.

Generally, the bright-line property rule does not apply to a sale of property that has been your main home, inherited property, or if you're the executor or administrator of a deceased estate.

What the test does is it treats any financial gain made on the sale of the property within that period as income - which can be taxed.

It is that income - in essence the capital gain - not the whole value of the property, that is taxed. The profit made from the sale will be added to the person's income and will be subject to the marginal tax rate.

If you have any questions relating to the Brightline test and tax on your property sale, My Mobile Accountant can help. Please get in touch.

Information for this article sourced from the IRD website.

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