What is the Bright-line test?
The Bright-line test determines whether the profit gained from the sale of a residential property is taxable. Profits will be taxable if a house is bought and sold within a specified period called the Bright-line period.
For a standard purchase of property, the Bright-line period begins on the date the property is transferred into your name.
For a standard sale, the Bright-line period ends the date you sign a binding sale and purchase agreement.
The Bright-line test is changing AGAIN
The Bright-line test was first introduced in 2015. It has changed a few times since then.
Most recently, the Bright-line period was 10 years meaning that if you purchased a residential property on or after 1 March 2021 and sold within 10 years, you were in the Bright-line period and tax on your profit is payable.
From 1 July 2024, a two year Brightline period now applies.
This means that if you sell a property on or after 1 July 2024, the bright line test will only apply if the property is being sold within 2 years of the purchase.
The main exceptions to the Bright-line test
Your profits will not be taxed due to the application of the Bright-line test if:
- The property is your main home.
- The property was inherited, or you are selling the property as the executor of an estate.
There are other more specific exceptions to the Bright-line test.
To name a few examples, profits may not be taxed if the property was:
- transferred under a relationship property agreement.
- transferred to or from a family trust.
Contact our team if you are considering selling your property, and we can guide you through the process and any issues that may arise.
Disclaimer - PR Law does not provide financial or tax advice.
