Investment property and the bright line test.
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.
The date in which you acquire the property determines whether the bright-line period is 5 or 10 years. For tax purposes, a property is generally acquired on the date a binding sale and purchase agreement is entered into (even if some standard conditions still need to be met). However, there are a number of exclusions to the bright-line test, and a raft set of rules relating to those exclusions which may apply to your property. These are specifically in relation to the main home and change of use exclusions.
If you are in the process of buying or selling property, or considering your options, our team here at JL Accounting are more than happy to answer your questions that you may have and work through the sale and purchase process with you.
If you have questions about this topic or would like some advice on this matter or other conveyancing issues, please contact us.