Skip to main content
Inland Revenue

Tax Policy

Chapter 1 - Introduction

1.1 As part of Budget 2015, the Government announced that it would introduce a “bright-line” test for the sale of residential property. The test will require income tax to be paid on any gains from the sale of residential property that is bought and sold within two years, with the exception of the main family home.

1.2 The purpose of the bright-line test is to supplement the “intention test” in the current land sale rules. The intention test makes gains from the sale of real property purchased with an intention of resale taxable.

1.3 The intention test can be difficult to enforce due to its subjectivity. The bright-line test is intended to deal with the problem by supplementing the intention test with an unambiguous objective test.

1.4 The objective nature of the test means the bright-line test will make a sale of residential property taxable when the seller did not acquire the property with an intention of resale and when a person needs to sell property due to circumstances outside of their control. This is unavoidable for the bright-line test to achieve its goal of being objective and unambiguous.

1.5 For the bright-line test to be effective, the number of exceptions should be as few as possible, and tightly defined. However, we consider that some exceptions can be justified for types of acquisitions when the property is the main home of the seller or, in certain circumstances, when the seller did not intend to acquire the property.

1.6 This issues paper discusses the design of the bright-line test, where we have attempted to use existing rules in tax law where possible. This helps provide certainty for taxpayers, by using existing interpretations and guidance when applying the rules. Suggested wording for the charging provision and main home exception is provided in the Appendix. Officials are interested in feedback on the suggested changes outlined in this paper.

How to make a submission

1.7 Officials invite submissions on the suggested changes and points raised in this issues paper. Submissions should be addressed to:

Bright-line test for sales of residential property
C/- Deputy Commissioner, Policy and Strategy
Inland Revenue Department
PO Box 2198
Wellington 6140

Or email [email protected] with “Bright-line test for sales of residential property” in the subject line. Electronic submissions are encouraged. The closing date for submissions is 24 July 2015.

1.8 Submissions should include a brief summary of major points and recommendations. They should also indicate whether it would be acceptable for Inland Revenue and Treasury officials to contact those making the submission to discuss the points raised, if required.

1.9 Submissions may be the subject of a request under the Official Information Act 1982, which may result in their release. The withholding of particular submissions, or parts thereof, on the grounds of privacy, or commercial sensitivity, or for any other reason, will be determined in accordance with that Act. Those making a submission who consider that there is any part of it that should properly be withheld under the Act should clearly indicate this.