The Bright-Line Property Rule

The bright-line rule looks to whether a person who sells a residential property must pay tax on the profit they make from the sale. The profits are taxed at the seller’s highest marginal tax rate for their annual income.

Who does the test apply to?

The bright-line rule applies to residential properties, including land with a dwelling on it or bare land. Farmland and residential properties used as business premises are not included.

The rule applies to property acquired:

  • On or after 27 March 2021, and sold within the 10-year bright-line period

  • Between 29 March 2018 and 26 March 2021, and sold within the 5-year bright-line period

New builds acquired on or after 27 March 2021 will continue to be subject to a 5-year bright-line period. What is considered a ‘new build’ is still to be consulted on but is intended to include properties acquired within one year of receiving their Code Compliance Certificate under the Building Act 2004.

Time periods

The bright-line period begins at the date of acquisition, which for tax purposes is the date a binding sale and purchase agreement is signed. The period ends when a binding sale and purchase agreement to sell the property is entered into.

If someone is a nominee to a sale and purchase agreement, the date of acquisition for the nominee is the date that the deed of nomination is signed.

Exemptions to the rule

  • Main Home

The bright-line test does not apply where the property that is being sold is the “main home” of the seller. However, this is not as straightforward as it looks on the surface.

Under the 5-year rule, more than 50% of the property must be used as the owner’s main home. This means they must live in the home for more than 50% of the total time they have owned the property for the exemption to apply.

Under the 10-year rule, the main home exemption applies for the period of time that the property was used as the owner’s main home. From 27 March 2021, if the home sold 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 profit from the sale that is equal to the proportion of the time the property was not being used as the owner’s main home.

Keep in mind that second homes and holiday homes are not able to be captured under the main home exemption. Additionally, individuals can only have one main home; however, spouses can have different main homes depending on living arrangements. When thinking about whether your property is your main home, consider where personal property is kept, the amount of time spent living in the property and the use of the home.

The main home exemption does not apply if the seller has a regular pattern of either buying and selling or building and selling their main home, or if they have used the main home exemption twice or more over the 2-year period immediately before selling their main home.

  • Property is inherited

Property that is inherited is exempt from the bright-line rule if it is sold by the person who inherited the property. However, if any part of the property is acquired other than by inheritance, it may be subject to the bright-line rule.

  • Property is acquired from a relationship property settlement

Property transferred under a relationship property agreement will not be subject to a tax liability under the bright-line rule. However, this only applies when the property is transferred between the parties; the bright-line rule will apply if the property is sold to a third party within the relevant bright-line period and it is not the main home.

Points to note

  • Residential properties held in a trust can use the main home exemption if the house sold was the main home of a beneficiary of the trust and either the principal settlor does not have a main home, or it is the main home of the principal settlor of the trust that is being sold.

  • In the situation where parents help their children buy a home and the parents’ names are on the paperwork, either as a co-owner or an outright owner, and the parents do not live in the house, the bright-line rule will apply.

  • If a company that own a residential property transfers more than 50% of the total shares in that company, the bright-line rule will be triggered. Companies cannot be captured under the main home exemption, so this transfer will be subject to tax payments under the bright-line rule.


It is important to understand if and how the bright-line rule will affect your tax obligations in a property transaction. The bright-line rule does not replace existing property tax rules, and people can be caught out by assuming they meet the exemption requirements, in particular the main home exemption. We recommend you seek accounting advice to ensure you are aware of any tax implications and avoid encountering any unexpected tax bills.

DISCLAIMER: The content of this document is general in nature and is not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.


Rachael is a North Canterbury local, born and bred in Woodend. She graduated from the University of Canterbury with a Bachelor of Laws and a Bachelor of Arts (majoring in Mass Communications) in 2014. While studying, Rachael worked at Christchurch law firm, MDS Law, for two years. In 2015, Rachael commenced work as a solicitor in Rangiora.

For further information on buying your first home please contact Rachael.

Rachael Zaronis (LLB, BA)
Solicitor / Director

First Floor Conway Building
188 High Street
PO Box 576
Rangiora 7400

Ph 03 909 0101
Fax 03 359 8240