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Bright-line test extended to 10 years

Bright-line test extended to 10 years

Bright-line test extended to 10 years

Tuesday 6 April, 2021

You can read more about other changes for property investors in the Government’s housing policy in our previous article.

On 23 March 2021, the Government announced its intention to extend the bright-line test for tax on the disposal of residential land to 10 years.

The Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill received Royal Assent on 30 March 2021 and the new extended 10-year period applies from 27 March 2021.


The bright-line test was originally enacted in 2015 and applies to the disposal of residential land acquired after 1 October 2015.  An initial 2-year period applied and this was extended to a 5-year period for residential land acquired after 29 March 2018.

The definition of “residential land” includes:

  • land that has a dwelling on it;
  • land for which the owner has an arrangement that relates to erecting a dwelling; or
  • bare land that may be used for erecting a dwelling under rules in the relevant operative district plan.

The definition does not include land that is:

  • used predominantly as business premises; or
  • farmland

Where residential land is disposed of within the relevant period after acquisition then the bright-line test applies to tax any capital gain on disposal. For the most part, land is acquired when a transfer of title is registered and disposed of when a contract is entered into for sale of the land.  However, there are some differences in acquisition dates for “off the plan” sales, subdivided land and perpetually renewable leases converted into freehold.

The application of the bright-line test is subject to specific exemptions, including:

  • main dwellings (subject to restrictions);
  • transfers under a relationship property agreement; and
  • disposals by executors/administrators or by beneficiaries of an estate.


The extension of the bright-line test from 5 years to 10 years will apply to residential land acquired after 27 March 2021.

The 2-year period will still apply to land acquired after 1 October 2015 but before 29 March 2018, and the 5-year period to land acquired after 29 March 2018 but before 27 March 2021.

Other than the extension to 10 years, it is business as usual in relation to the bright-line test. However, the extension will widen the net of sales potentially subject to the bright-line test.  Changes in personal and financial circumstances are more likely to occur over a 10-year period and may necessitate disposals of residential land that would otherwise have fallen out of the 5-year period.

Property owners will need to carefully consider the implications of the new 10-year period when looking to dispose of residential land that is not subject to an exemption (e.g. investment/rental properties or holiday homes). 

Exemption for new builds

The Government has announced that the extension of the bright-line test will not apply to new builds, as the Government wants to encourage new residential dwellings. The Government intends to introduce legislation exempting new builds from the bright-line changes once it has consulted on the definition of a new build. New builds are currently covered by the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill, but the exemption for new builds will apply retrospectively once the exemption legislation is passed. At this stage, the definition of a new build is likely to include properties that are acquired within a year of receiving their code compliance certificate under the Building Act 2004.

When is a property not the main home?

Any residential property used as the owner’s main home for the entire time that they have owned it will be exempt from the bright-line test. However, from 27 March 2021, if the home was not used as the main home for more than 12 months during the applicable bright-line period, the owner will have to pay tax on a proportion of the capital gain equal to the proportion of time the property was not being used as the owner's main home.