Bright-line test

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The bright-line test is a New Zealand tax rule that makes the profit on a residential property sale taxable if the property is sold within a set period after it was acquired. For property sold on or after 1 July 2024, that period is 2 years.

Why it matters

It is New Zealand's closest thing to a capital gains tax on residential property, and it applies regardless of what you intended when you bought. If you sell inside the period, the gain is added to your income and taxed at your marginal rate — it is not a separate flat tax, and it can push part of your income into a higher bracket.

The 2-year period applies to all residential property sold on or after 1 July 2024, no matter when it was bought. Properties that were previously subject to 5-year or 10-year periods moved to 2 years.

How the dates work

• Start date: generally the date the title transfers to you — the settlement date, not the date you signed the agreement
• End date: generally the date the sale and purchase agreement is signed, not settlement

That asymmetry catches people out. You can sign a sale agreement inside the period and settle outside it, and still be caught.

Worked example

You settle a purchase on 1 March 2024. You sign a sale and purchase agreement on 15 February 2026, settling 15 March 2026.

Bright-line start: 1 March 2024. Bright-line end: 15 February 2026 — just under two years. The bright-line test applies. Waiting a fortnight to sign would have put you outside it.

Main exclusions

Main home, farmland, and business premises. Some transfers (including certain inheritances and rollover situations) have their own relief.

Common misunderstanding

Passing the bright-line test does not mean the sale is tax-free. It is one land-sale rule among several. If you bought with an intention or purpose of resale, or you are a dealer, developer or builder, the gain can still be taxable under other rules regardless of how long you held it.

Related terms

Sources

• IRD — The bright-line test: ird.govt.nz/property/buying-and-selling/when-you-need-to-pay/the-brightline-test
• IRD guide IR1229
• IRD Property tax decision tool

Last reviewed: 1 August 2026 · General information only, not tax advice.

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