Bright-line rule for residential land transactions

We’ve noticed an increased number of queries regarding the bright-line rule for residential land transactions.  Given this rule is one of the IRD’s review areas, we think it’s timely to remind you a few key facts regarding this rule:

  1. The bright-line rule applies for residential land acquired on or after 1 October 2015.
  2. With effect from 29 March 2018, gain from sale of residential land is subject to tax if the sale is within five years of acquisition. (Before 29 March 2018, the test period was two years.)  Reliefs from the bright-line rule are only for limited circumstances (generally, main home, relationship property settlement and death).
  3. The bright-line test applies to residential land situated in NZ regardless whether the owner is a NZ resident or not.  It also applies to residential land situated overseas if the owner is a NZ tax resident and doesn’t have transitional resident exemption and/or double tax agreement relief.
  4. For a standard house purchase, the five-year period starts from the date when the transfer of title is registered and ends on the date when a sale and purchase agreement to dispose the land is entered into.  It’s important that you know these dates.  It’s also important that you keep copies of all relevant acquisition and disposal documentation, including copies of invoices for relevant expenses.
  5. If you have subdividing land, acquisition “off the plans” and/or other non-standard circumstance, the start and end dates of the five-year period are determined differently.  Please ensure you seek further advice on this.
  6. Finally, the existing land taxing provisions continue to apply in addition to the bright-line rule.  If you are involved in or associated with land dealing, development, subdividing, or building activities, you’re likely to be subject to the land taxing provisions anyway.

We hope the above information helps.  A Chinese version of the above information is available here.

Disclaimer: The above information is for your information only and does not constitute a tax opinion or advice.  If you require specific tax advice, please contact us or your tax adviser.