The bright-line test is New Zealand’s closest equivalent to a property capital gains tax. If you sell a residential property within the bright-line period, the profit is taxable as income.
From 1 July 2024, the bright-line test is 2 years — reduced from 10 years by the National-led government. If you buy and sell a residential property within 2 years, the profit is taxable income. Your main home is exempt. The 10-year rule still applies to properties bought before 27 March 2021.
Bright-Line Timeline in NZ
| Purchase date | Bright-line period |
|---|---|
| Before 1 October 2015 | No bright-line (no test existed) |
| 1 Oct 2015 – 28 March 2018 | 2 years |
| 29 March 2018 – 26 March 2021 | 5 years |
| 27 March 2021 – 30 June 2024 | 10 years (or 5 years if “new build”) |
| From 1 July 2024 | 2 years |
If your property was bought on or after 1 July 2024, you only need to hold it for 2 years to avoid the bright-line test.
How the 2-Year Bright-Line Works
Start date: The bright-line period starts on the date the property is registered in your name (title transfer date).
End date: The bright-line period ends when you enter a sale and purchase agreement to sell.
Example:
- You register title: 1 August 2024
- You sign sale and purchase agreement to sell: 20 July 2026 (23 months later)
- Result: Within 2 years → bright-line applies, profit is taxable
If you wait until 2 August 2026 (24 months), you’re outside the 2-year period → no bright-line tax.
What Is Taxable?
If the bright-line test applies:
- Taxable amount: Sale price − purchase price − selling costs − capital improvements
- Tax rate: Your marginal income tax rate (up to 39% for income over $180,000)
- No 50% discount: Unlike Australia’s CGT 50% discount for assets held over 12 months, NZ gives no such reduction
Example:
- Purchase price: $800,000
- Sale price: $950,000
- Selling costs (agent, legal): $25,000
- Capital improvements (new kitchen): $30,000
- Taxable gain: $950,000 − $800,000 − $25,000 − $30,000 = $95,000
- Tax at 33%: $31,350 owed to IRD
Main Home Exemption
Your main home is fully exempt from the bright-line test, provided:
- The property was your main home for most of the time you owned it
- You haven’t used the main home exemption more than twice in 2 years
Mixed use (part home, part rental): If part of your home was rented (e.g., a boarder), or you lived in it for only part of the ownership period, a proportional calculation applies. Only the “main home” portion and time is exempt.
Holiday homes: Not exempt (unless you genuinely lived there as your main home).
Other Exemptions
| Situation | Exempt? |
|---|---|
| Main home (as above) | Yes |
| Property transferred under relationship property settlement | Yes |
| Property inherited | Yes — bright-line does not apply to inherited property |
| Māori land | Yes |
| Commercial property | Not applicable (bright-line is residential only) |
| New builds (bought 27 March 2021 – 30 June 2024) | 5 years (not 10) during that period |
Properties Bought Before 1 July 2024
If you bought between 27 March 2021 and 30 June 2024: The 10-year bright-line still applies to you (or 5 years if it was a new build at purchase). You cannot benefit from the 2024 reduction to 2 years.
If you bought before 27 March 2021: The applicable bright-line period at your purchase date applies.
This means some investors who purchased in 2021–2022 still face a 10-year bright-line and must hold until 2031–2032 to sell tax-free.
How to Report Bright-Line Income
If bright-line tax applies to your sale:
- Include the gain in your IR3 income tax return for the tax year of sale
- IRD may automatically assess if you’ve already filed — check your myIR account
- Work with a tax adviser if the property involved mixed use or complex ownership
Do not ignore bright-line tax. IRD receives Land Information NZ property transfer data and cross-references with income tax returns.
Bright-Line vs Australia’s CGT
| Feature | NZ Bright-Line | Australia CGT |
|---|---|---|
| Period | 2 years | None (applies indefinitely) |
| 50% discount for long holds | No | Yes (after 12 months) |
| Applies to | Residential property | All assets |
| Rate | Marginal income rate | Marginal income rate |
| Main home exempt | Yes | Yes |
Australia taxes capital gains on shares indefinitely. NZ’s bright-line is residential property only and time-limited — outside 2 years, property gains are not taxed.
Planning Considerations
Selling soon after 2 years: Give yourself a buffer — plan to sign a sale agreement several weeks after the 2-year anniversary, not just after.
Selling to a related party: IRD scrutinises sales below market value between family members. Ensure transactions reflect market value.
Long-term investor? For a buy-and-hold investor planning to hold 5–10+ years, the bright-line is largely irrelevant. The bigger tax considerations are rental income (marginal rate), interest deductibility, and GST (not applicable to residential rentals).