Here’s what you need to know:
The last National Government introduced a ‘bright-line test’ for people who sold residential property after owning it for only a short time.
They said any profits made on properties sold within two years of purchase would be taxable. The last Labour Government increased the time period to five years. Now the period has increased again – to 10 years – for properties bought on or after 27 March 2021.
The first thing to note
The period of ownership is not strictly two years, five years or 10 years. This is because sales of existing properties are measured from the date of transfer of title to the buyer as a starting point, and the date a sale and purchase agreement is signed at the time of selling. A purchase off the plan starts on the date the contract is signed.
If you acquired a property before 27 March 2021
and settle after that date, you are subject to the five-year rule (acquired means a written binding agreement for purchase).
Some people will have put in tenders before this magical date and have no right to withdraw them. If the tender is successful, the five-year rule applies.
If you rent your home two rules apply
1. If the five-year bright-line test applies, you look at the percentage of the time the house was used as a main home. If it’s more than 50 percent, no problem.
2. If the new 10-year bright-line test applies, the bright-line test only applies if you have not lived in your house for more than 12 months, continuously. So, if you decide to have an extended period overseas and rent your home, you might need to consider the tax implications.
The new rule is not an “all or nothing” like the old rule. Under the new rule, if there is a 12-month period when the home isn’t used by the owner, an apportionment is required.
The good news is, if you have owned the house for more than 10-years the the bright-line test will not apply.