IRD applies Bright-Line Test for residential property

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In 2015, Inland Revenue introduced a Bright-Line Test in relation to the sale of residential property. The test is to determine if you are required to pay tax on profit from buying and selling a house within two years. In 2018, this test was extended to five years.

The Bright-Line Test is applied on the sale of residential property when:

  • The property was acquired between 1 October 2015 and 28 March 2018, and sold within two years of acquisition;
  • The property was acquired on or after 29 March 2018 and sold within five years of acquisition.

The Bright-Line Test works alongside the Intention Test, which is used by Inland Revenue to determine tax liability on the original intention at the time the property sold was first acquired. The Intention Test applies to all residential property. Exemptions include business premises, farm land, and commercial land.


The Bright-Line Test will not usually apply to:

  • The main home;
  • Transfer of residential property under a Relationship Property Agreement;
  • Transfer of residential property as part of an inheritance or estate distribution;
  • Māori land.

When is the Bright-Line Test Triggered?

The start of the Bright-Line Test is the date of acquisition, being the date the property is registered with Land Information New Zealand (i.e. the day settlement was completed). There are different rules when buying residential land ‘off the plan’ or when purchasing an unfinished apartment building.

The date of disposal is the date the Sale and Purchase Agreement was entered into and there are different rules for gifting, mortgagee sales and compulsory acquisitions.

Main Family Home Exclusion

The main home exclusion can only be used for one property at a time and is determined by the degree of use, and the property to which you have the greatest personal connection. If you were to own multiple properties, only one would qualify as the main home. However, in limited circumstances you may qualify to have two main homes.

This exclusion would not apply if you had a history of buying and selling properties and the main home exclusion was used twice in two years.


Properties owned by a Trust, may be eligible for the main home exclusion, but these properties will need to meet certain requirements in order to prevent people taking advantage of this rule.


Taxpayers need to be aware that the Bright-Line Test is designed to make it easier for Inland Revenue to have residential property owners pay tax on residential land that has been bought and sold within the two or five-year period.

We recommend that if you have any concerns about the Bright-Line Test, and residential property you are connected with, that you contact us to discuss your position, especially before entering into any Sale and Purchase Agreement of residential land.