Buying and selling property for profit? You may still be liable for the Brightline tax.

In July, we talked about the changes to the Brightline rule for residential property sales – property sold after two years of its purchase date would not be liable to the Brightline rule. This change meant that those who held a property for at least this long were not automatically taxed on any gains made on the property. 

If you’re buying or selling properties for profit, you may get a tax bill, even if you’ve held the property for longer than two years or even if you’ve lived in the property. 

The Brightline rule for residential property sales was reduced to two years from 1 July this year which meant property purchased prior to July 2022 would no longer be automatically subject to the Brightline rule. However, if you purchased a property with the intention to resell it, regardless of how long you’ve held the property, you can be taxed on the gain/profit. 

The Inland Revenue (IRD) has recently released a property tax decision tool to help people understand whether their property was taxable under any of the land taxing rules. This includes those who bought a property intending to resell it, no matter how long they held it, or those who had a history of buying and selling that could have them count as a dealer, as well as those captured by the Brightline rule. Any property that is bought with the intention of sale can be taxed, irrespective of the Brightline test. 

The IRD has an information-sharing agreement with Land Information New Zealand (LINZ) which would prompt the IRD to contact people it had concerns about. Although they don’t have a fast or hard rule about the number of times that people could buy and sell, or renovate and sell houses, and not be taxed, generally three prior transactions would be needed for there to be a regular pattern. 

So, if you’re buying properties with the intention to resell them in the future, be aware, you could be taxed on the profit or gain you make on the property – even if you’ve held it for longer than two years.