Investment property and the bright line test.

model house

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.


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