Bright-line test for sales of residential property

Legislation which covers acquisition and disposal of residential land within two years is called bright-line test. The test requires income tax to be paid on gains from the disposal of certain residential property acquired and disposed of within two years, with the exception of the main family home.

The bright-line test came into force on 1 October 2015. It only applies to a person’s disposal of land if the person acquires their estate or interest in the land on or after 1 October 2015. Where there is a standard acquisition of land, the date a person acquires their estate or interest will generally be the date of entry into an agreement to purchase the land.

This means the bright-line test will only apply to the sale of land if the agreement for purchase of the land was entered into on or after 1 October 2015.

Note: An amendment introduced in Supplementary Order Paper No 13 to the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Bill proposes to extend the current bright-line test for residential land in New Zealand from two to five years.

Acquisition date

The two-year period for the bright-line test runs from the date of acquisition, generally, this will be the date the title to the land is registered for the purchase of the property. The bright-line date for the disposal of the property is generally the date that a person enters into an agreement for the sale of the property.

There are a number of situations when land is acquired that do not follow the standard land sale process. In those situations, separate rules apply for when the bright-line period starts.


When a person dies, their property may be sold or transferred to a beneficiary, who may subsequently sell the property. These transfers and disposals will not be subject to tax under the bright-line test.

Relationship property

When a relationship breaks down, property may be transferred between the spouses or partners. The property may then subsequently be sold. Transfers of property under a relationship property agreement are excluded from the bright-line test. However, any subsequent sale of the transferred property will be subject to the bright-line test.

For further information or to discuss situation specific to you, please call JB Lloyd Chartered Accountants Limited on 07-575-3790 or email