With increases in the average house price increasing by 22.8 per cent from February 2020 to February 2021, the Government have introduced changes to the “bright-line test” in a bid to take the heat out of the residential property market. The changes look to discourage investors buying multiple properties and on-selling them for a healthy profit without paying tax on such profit.
The bright-line test provides the parameters to determine whether you are required to pay income tax on any profit made through an increase in value on a residential property on the sale of such property. The bright-line test was initially introduced by the National Party in 2015 as a tax on capital gains made from the sale of houses – other than the family home – bought and sold within a certain period. The bright-line period was 5 years, however as at 27 March 2021 the bright-line period has been extended to 10 years.