An interesting article was published in Stuff on 23 January 2020:

The article is broadly about the tax Brightline Test which taxes capital gains on real property bought and sold within a specified period.

The Stuff article includes some misleading comments and also highlights a critical error (albeit by omission) in the way IRD tells taxpayers how the Brightline period is calculated.


Some important clarifications are required.

 “Property traders” seems to imply people who are buying and selling properties on a regular basis.  In fact, property dealers have been taxed on gains for a long time.

An unnamed IRD spokesperson is quoted as saying:

“Before the brightline test was introduced, there was no set time period within which a sale was taxable. It was determined according to the intent of the seller. If Inland Revenue could show that they bought the property with the intent of sale, tax would be applied.”

In fact, since long before the Brightline Test was introduced there have been a plethora of rules that apply to tax gains on the sale of land and buildings.  They include dealers as noted above, builders, developers, persons or entities associated with these persons, land where there has been a zoning change or even the likelihood of a zoning change and land that has been developed or subdivided.  There are also exclusions and exemptions potentially available.

A statement that previously income tax only applied to those land transactions where property was bought with a readily provable intention of resale is a gross misrepresentation.

The $12.5M of tax to be collected is not sourced from just one particular group of ‘dealers’ or ‘traders’, but rather is a reference to the tax that IRD has collected in a year from many traders and speculators, including not only those caught by the Brightline Test but also those caught by all the other longstanding land taxing provisions.  We imagine there is a lot more to be collected.

Ownership period

In respect of the Brightline Test, for property bought from 1 October 2015 to 28 March 2018 the relevant ownership period was two years.  From 29 March 2018 the period is five years.

It is critical to note how the ownership period is calculated.

IRD’s website has a page dedicated to Questions and Answers regarding the Brightline Test.

It includes the critical paragraph:

  1. When does the bright-line period start?

Generally the bright-line period starts on the date the property title is officially transferred to you, which is the date the property transfer is registered with Land Information New Zealand (LINZ).

In most (but not all cases) this will be correct. 

However, it is the ending of the test period where expectations will often differ from reality.  Based on the IRD so-called “answer” it would be very easy for  any person relying on it to assume the relevant two or five test period years ends when the title is subsequently transferred to the new owner.

Unfortunately, that is generally not the end of the test period.  In fact it can occur much, much earlier.

If you sell the property, the five years invariably ends immediately you sign the agreement for sale.  This is the case:

  • Even if the sale is conditional.
  • Even if there’s a long settlement.
  • Even if that timeframe means the property was in fact held in your name for much longer than a two or five year period.

We have raised this lack of direction with IRD but, so far, they remain silent.

Another advisor referred us a client who, after a change in circumstances forced a sale, had carefully calculated whether or not they could sell their property without the Brightline Test applying.  In addition to reviewing IRD’s web guidance, they also contacted IRD for guidance (a very dangerous proposition) who verbally insisted that the measurement was from the date of agreement to purchase until date of agreement to sell.  Wrong again.

By ensuring the agreement to sell was entered into more than two years after the agreement to purchase had been entered into, and that settlement occurred more than two years after the property was transferred into their name, they thought they were safe by three weeks.  Instead they were short by nearly a month resulting in a $60,000 unnecessary tax bill.


Always remember that IRD’s job is not to give advice, it is to collect tax. 

If the consequences of IRDs website comments or verbal guidance being wrong or unclear could be material, then no matter how insistent or clear that communication purports to be, you need to get professional advice from someone whose job is to give advice, not collect tax.

Leave a Reply

Your email address will not be published. Required fields are marked *