The bright-line test is New Zealand’s closest equivalent to a capital gains tax on residential property. If you sell a residential property within the bright-line period, the profit is taxable as income — regardless of your intent when buying. Understanding the current rules and exemptions is critical for any property owner.
As of 1 July 2024, the bright-line period is 2 years for all residential property (existing and new builds). If you buy and sell within 2 years, the gain is taxable as income at your marginal rate. Main exemptions: the main home exemption (property is your principal residence), and inherited property. If your property was bought before 27 March 2021, it may be outside the bright-line entirely or subject to the shorter historic rules.
What Is the Bright-Line Test?
The bright-line test was introduced in 2015 to tax gains on residential property sold “too quickly” — even if the seller did not buy with the intent to sell at a profit (which was previously required for property gains to be taxable under the “land dealer” rules).
The test is “bright-line” because it relies on objective date thresholds rather than subjective intent — if you sell within the period, the gain is taxable. Full stop.
Current Bright-Line Period (from 1 July 2024)
2 years for all residential property — both existing properties and new builds.
This is a significant rollback from the prior 10-year rule (existing properties) and 5-year rule (new builds) that applied from March 2021 to 1 July 2024.
| Period | Policy | Bright-line period |
|---|---|---|
| Before 1 Oct 2015 | No bright-line | None |
| 1 Oct 2015 – 28 Mar 2018 | Labour/National | 2 years |
| 29 Mar 2018 – 26 Mar 2021 | Labour | 5 years |
| 27 Mar 2021 – 30 Jun 2024 | Labour | 10 years (existing) / 5 years (new builds) |
| 1 Jul 2024 onwards | National | 2 years (all property) |
How the Bright-Line Period Is Measured
The bright-line period is measured from the date the title is registered (settlement/transfer date) to the date you enter a binding sale and purchase agreement to sell.
Note: It is not from the date of purchase contract to the date of sale contract — it is from settlement to when the sale agreement is signed.
Example:
- Settlement date (purchase): 15 March 2024
- Sale and purchase agreement signed: 20 February 2026
- Days between: approximately 23 months — within 2 years → taxable
If the sale agreement was signed on 16 March 2026 (2 years and 1 day after settlement): outside the bright-line → not taxable under bright-line (though other rules may still apply).
What Is Taxable?
If the bright-line applies, the taxable income is:
Sale price − Purchase price − Allowable costs
Allowable costs that reduce the taxable gain include:
- Purchase price of the property
- Legal fees at purchase and sale
- Real estate agent commission
- Capital improvements made to the property (but not repairs or maintenance)
- Depreciation previously claimed on chattels (added back)
The resulting net gain is added to your other income and taxed at your marginal rate.
Example:
- Purchase price: $750,000
- Sale price: $850,000
- Legal fees (purchase + sale): $4,000
- Agent commission: $15,000
- Capital improvements: $10,000
- Taxable gain: $850,000 − $750,000 − $29,000 = $71,000
- Tax at 33%: approximately $23,430
Main Home Exemption
The most important exemption. If the property was your main home (principal place of residence), the bright-line does not apply.
Conditions for the main home exemption:
- You used the property as your main home for most of the time you owned it
- You did not use it mainly to earn income (e.g., renting it out long-term while living elsewhere)
- The exemption applies to the proportion of time/area used as main home if it was partly a rental
Mixed use (partly rented, partly main home): If you rented out a property for some of the time and used it as your main home for the rest, only the rental portion of the gain is taxable.
Important: The main home exemption can only be used twice in a 2-year rolling period. If you flip homes claiming the main home exemption repeatedly, IRD may deny it.
Other Exemptions
| Exemption | Details |
|---|---|
| Inherited property | Property inherited on death is exempt from bright-line |
| Relationship property transfers | Transfers under the Property (Relationships) Act are exempt |
| Executor/trustee sales | Certain estate sales exempt |
| Farmland | Farmland is generally excluded |
| Business premises | Commercial property not covered by residential bright-line |
New Builds — Historic 5-Year Rule
Properties classified as new builds were subject to a 5-year bright-line period (not 10) under the previous Labour government rules (March 2021 – June 2024). From 1 July 2024, new builds also moved to the 2-year rule. If you bought a new build between March 2021 and June 2024, the 5-year rule applies to that property, not the 2-year rule.
How to Declare Bright-Line Income
If the bright-line test applies to your property sale, you must:
- File an IR3 for the year the sale occurred
- Include the taxable gain as income on a separate schedule (bright-line income section)
- Pay tax on the gain at your marginal rate
IRD tracks property transactions through Land Information New Zealand (LINZ) data. They routinely check sales against purchase dates and follow up on potential bright-line breaches. Do not assume they will not notice.
Frequently Asked Questions
I bought in 2022 during the 10-year rule. Does it still apply to my property?
Yes. The bright-line period that applied when you purchased your property governs that property. If you bought between 27 March 2021 and 30 June 2024, the 10-year rule applies (or 5 years for new builds). The 2-year rule only applies to properties purchased on or after 1 July 2024.
Does the bright-line apply to my holiday home?
Yes, unless you use it as your main home. A holiday home used only part of the year is not your main home, so the main home exemption does not apply and the bright-line can trigger a tax bill if sold within the period.
Does the bright-line apply to commercial property?
No. The bright-line test applies to residential land only. Commercial properties, industrial properties, and bare land are not covered (though other rules like the dealer/developer rules may still apply).
Can I offset a bright-line gain with losses from another property?
Bright-line gains are treated as residential land income. They can be offset by any ring-fenced rental property losses carried forward. Capital losses from other investments cannot offset bright-line income.
What if I renovate and sell — is that bright-line or dealer activity?
If you regularly buy, improve, and sell properties, IRD may classify you as a property dealer regardless of the bright-line. Dealer income is taxable on all property sales, not just those within the bright-line period.