Tax Talk: July 2024

Today (1 July 2024) is significant for many landowners as the bright-line test returns to a two-year period. This will allow some landowners to sell/transfer properties without a resulting gain being taxed. 

The more savvy among them may have already listed knowing they cannot sign an agreement until today, whereas others will be a slower to the market. In any case, I am expecting an increase in the supply of residential properties due to the changes. 

In addition to the reduced bright-line period, there are changes to the main home exclusion and the application of rollover relief for related-party transfers. As always, the legislation is not straight forward and, if you would like to know more, please read on. 

– Alex

Reduced bright-line period

The bright-line test taxes gains arising when residential land is acquired and sold/transferred within a specified period (the bright-line period). For a person purchasing an existing home, the bright-line period usually begins when title is received and ends when an agreement is signed for its sale.  

Under the previous rules, if the person’s bright-line period is less than ten years (five years for new builds) the bright-line test would apply to tax a gain. This is unless the owner qualifies for the main home exclusion or rollover relief (discussed in more details below). 

However, from today, the bright-line test returns to a two-year period. This means that landowners who acquired prior to 1 July 2022 may sell/transfer and without the bright-line test applying. 

Changes to the main home exclusion

The main home exclusion exempts a portion or the entirety of a gain from being taxed under the bright-line test. A landowner may be eligible for this exclusion if the property is their main home, or the main home of a beneficiary (in the case of a trust owning the property). 

Before the changes taking effect today, the main home exclusion applied on a pro-rata basis. A gain would be split between a taxable and non-taxable component based on the proportion of a bright-line period it was used as a main home (and based on land area, in some cases). Despite this, there are concessions treating a non-main home period as a main home period during which a main home is constructed or if a move-in or move-out period is less than 365 days. 

From today, the main home exclusion is being applied on an all-or-nothing basis as it was prior to March 2021. If a property is used predominantly for a main home for at least 50% of the bright-line period, the whole gain is exempt from tax under the bright-line test. If it is not, the entire gain is taxed. 

Like the previous main home exclusion, there is a concession for landowners constructing a main home. However, in the new exclusion, this applies by ignoring the construction period when determining if a property has been used as a main home for 50% of the bright-line period.  

This change mirrors a respective update to the 2018 to 2021 legislation that is allowing some clients to receive a refund of tax paid under the five-year bright-line test. 

Changes to rollover relief

Rollover relief under the bright-line test ensures that some transfers of residential land are not taxed at the time of the transfer. Instead, the recipient takes on the original owner’s acquisition cost and bright-line start date. 

Before today, rollover relief could only be obtained for transfers to a limited number of legal entities when there is no change to the underlying economic ownership.  

However, rollover relief is now available for all transfers between associated persons, provided they have been associated for at least two years prior to the transfer. It also applies to transfers to trusts where all beneficiaries have been associated with the transferor for at least two years (other than infants under two years).

As always, don’t hesitate to reach out if you’d like help to work through the implications of any of these changes.

Alex Cull, Tax Specialist Wanaka Queenstown Auckland

Alex Cull, Tax Partner
[email protected]


Tax law is always changing.

If you’re reading this long after the published date, please get in touch to see if it’s still relevant.