Extension to bright line test on the way

Thursday 15 February 2018

Legislation which will extend the bright line test on residential property sales from two years to five years is about to enter Parliament.

By Miriam Bell

Revenue Minister Stuart Nash today confirmed he is introducing a Supplementary Order Paper to the Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters) Bill to give effect to the changes.

The previous National government introduced the bright line test which requires income tax to be paid on any gains from residential property sold within two years of acquisition, with some exceptions.

Nash says the extension means that profits from residential investment properties which are bought and sold within five years will generally be taxable.

The changes, which were signalled by the Labour Party prior to last year’s election, will help dampen property speculation and make homes more affordable, he says.

"It will ensure that property speculators pay income tax on their gains and makes property speculation less attractive.

“We need investment which grows the economy and creates jobs, not the sort of investment which distorts the residential housing market.”

Not only will the measure bring fairness back into the tax system, but reducing speculative demand will help improve housing affordability for owner-occupiers, Nash says.

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."

*More information on the new Bill can be seen here

Read more:

New investors and property speculators likely to suffer under new rules 

D-day for new tax rules 

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