Extension of the bright-line test for residential property

From 29 March 2018, the bright-line test that is used to determine if you have tax to pay on the sale of residential property has changed.

If you entered into an agreement to purchase residential property on or after 29 March 2018 and sell it within 5 years, you’ll need to consider if it is taxable under the bright-line test. If a property was purchased on or after 1 October 2015 through to 28 March 2018, the bright-line test will look at whether the property was sold within 2 years.

The bright-line test doesn’t apply if the property was:

  • your main home
  • transferred as part of an inheritance
  • transferred to you as an executor/ administrator of a deceased estate.

Residential land withholding tax (RLWT)

The RLWT criteria has changed as a result of the extension of the bright-line test. From 29 March 2018, the sale of New Zealand residential property by an offshore RLWT person may now be required to have RLWT withheld if it is sold within 5 years of purchase. This will only apply to properties where an agreement to purchase was entered into on or after 29 March 2018.

With this extension, RLWT will apply if:

  • a sale amount is paid or payable on or after 1 July 2016, and
  • the property sold is New Zealand residential land, and
  • the seller:
    • has purchased the property on or after 1 October 2015 through to 28 March 2018 inclusive, and owned the property for less than two years before selling, or
    • has purchased the property on or after 29 March 2018 and owned the property for less than five years before selling, and
    • is an offshore RLWT person.

 

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