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.

Read more...

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.

Tags: property, investment, property investment, wealth management

Print Email

What our clients say

  • We could not ask for people more professional or dedicated than JL Accounting

    "We have been engaging the professional services of JL Accounting Services since 2012. Over this time we have found them to be extremely helpful and have given us the comfort of knowing our accounting needs are being fully met.

    They have completed our income tax returns during this period of time. They have greatly assisted us with managing the financial side of our investment properties. And more recently, they have also given us sound, useful and expert advice with regards to the purchase of an existing business, which was completed earlier this year. In this respect, they have been instrumental in our decision making on all financial matters leading up to, and beyond, the acquisition of the business. Without their expert advice We would not have been able to proceed with this purchase.

    We value their service with enormous gratitude and look forward to a continued long and successful relationship. Finally, on a personal level we have found them to be wonderful people to work with, We could not ask for people more professional or dedicated than the team at JL Accounting Services."

    Alan Hughes & Gillian Ward Hughes