Understanding the upcoming bright line test changes

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Revenue Minister Stuart Nash confirmed that the election “promise” to extend the bright line test from 2 years ownership to 5 years will be enacted, effective for properties acquired after the date of Royal Assent. The intended purpose of extending the bright line test is to ‘dampen property speculation’ and make homes more affordable. The extension means that profits from residential investment properties which are bought and sold within five years will generally be taxable.

Current exemptions from the bright line test will remain. They include the sale of an owner-occupier’s main home, inherited property, or the transfer of property in a relationship settlement.

The extension to the bright line test will apply to residential investment properties purchased from the date on which the bill receives the Royal Assent, which is expected in March. Nash adds that the passage of the bill will also enable the Tax Working Group to factor the change into any consideration of a comprehensive capital gains tax.

Auckland Property Investors Association president Andrew Bruce has previously said that the changes will impact on property speculators rather than long-term investors. “The majority of property investors are in it for the longer than five years and are unlikely to feel massive levels of pain with the extension of the bright line test.

See more information on the bill, click here.

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