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Time To Focus On The New Bright-Line Rules

Time To Focus On The New Bright-Line Rules

With July 1 fast approaching, it’s a good time to alert readers to some of the detail around the new bright-line and rollover relief rules which come into force from that date, writes Matthew Gilligan.

By: Matthew Gilligan

3 June 2024

As most readers will be aware, the bright-line period officially reduces to two years for all residential property from July 1. This means if you enter into a sale and purchase agreement on or after July 1, the bright-line rule will only apply if you have owned the property for less than two years.

The usual date for measuring when ownership of the property starts for the purposes of the bright-line rule is the date that you settled the purchase. As a result, if a purchase settled prior to July 1, 2022 any sale on or after July 1, 2024, will not be taxable under the bright-line rule.

While settlement is typically the start date of the bright-line period, it can be the date you enter into the agreement if you have bought the property “off the plans”. So, for “off the plans” sales, the start of the bright-line period is more friendly because it is the date you have a binding agreement, which will be much earlier than settlement.

Main Home Rule

While there is a “new” main home rule to accompany the two-year bright-line period, it’s actually a return to a previous main home rule. Under this main home rule, you are exempt from the bright-line rule if most of the property was used as your residential home for most of the time you owned it. This is a return to the “all or nothing” main home exemption, under which you are either exempt from the bright-line rule or your’re not.

This contrasts with the proportionate approach that exists under the current 10-year bright-line rule, which will cease to apply from July 1, 2024. We prefer the old rules (that are being reinstated), as they result in fairer outcomes.

Rollover Relief

From July 1 there is a new set of “rollover relief” provisions. Rollover relief is relevant when you restructure the ownership of a residential rental property within your family group. For example, you might own a property personally and want to move it into a company or trust ownership. Without rollover relief, such a transfer could trigger tax to pay under the bright-line rule if you have not owned the property for two years, and/or it can trigger a resetting of the bright-line period for a new two-year timespan.

But if rollover relief applies, neither of these things happen.

From July 1, rollover relief can be claimed when property is transferred between two parties that are deemed to be “associated”, as long as that association has existed for two years prior to the transfer.

We find this requirement odd. The fundamental philosophy behind the rollover relief rules is that they are meant to apply when there is no change in substance of the property’s economic ownership. For example, if I transfer a property to a newly formed company of which I am the sole shareholder, there is no change of economic ownership, and therefore in principle rollover relief should apply. However, under these rules it will not apply because the company did not exist two years ago and therefore the relationship of association has not existed long enough.

There is slightly more concessionary treatment available where a property is transferred to a trust.


In summary, the reduction of the

bright-line period to two years is obviously a welcome move for property investors, and the continued existence of rollover relief provisions is also helpful. However, the introduction of a two-year period of association to be able to claim rollover relief is unusual and unhelpful. It would not surprise me to see amendments to this part of the legislation as time progresses.

In the meantime, if you have been contemplating restructuring but were reluctant because a property was caught by the five-year or 10-year bright-line period, from July 1 there is going to be scope to restructure, but seek professional advice first because the rollover relief provisions are complex.

If you are planning on investing in property, either in an existing group or just starting out, we invite you to contact GRA (www.gra.co.nz). Our team are experts in property and business tax structures, and would be pleased to meet you for a consultation (free to new clients).