Harmans Lawyers
27 February 2024

The Bright-Line Test for Residential Property

All Articles & News, Residential Property

On 20 December 2023, the government announced its intention that effective from 1 July 2024, the bright-line test for residential property will be brought back to 2 years.

The bright-line property rule means that if you sell a residential property within a certain period after acquiring that property, you will be required to pay income tax on any profit that you make. Currently different rules and timeframes apply depending on the date that the property was acquired.

If you acquired the property between 1 October 2015 and 28 March 2018 then the bright-line period is 2 years. If you acquired the property between 29 March 2018 and 26 March 2021 then the bright-line period is 5 years. If you acquired the property on or after 27 March 2021 then the bright-line period is either 5 years for qualifying new builds, or it is 10 years for all other properties.

While different rules may apply, generally speaking, the bright-line period start date is the date that title is transferred to you (settlement date) and the bright-line period end date is the date that you enter into a binding agreement for sale and purchase to sell the property.

There are some exclusions to the bright-line property rule, for example if the property is your “main home”, or where the property has been inherited, where ownership is transferred pursuant to a relationship property agreement, and in some instances transfers to and from family trusts. The application of the “main home” exclusion rule varies depending on which bright-line period is applicable.

We await further detail from the government, including whether the upcoming change will be retrospective and have the effect of reducing existing longer bright-line periods for properties acquired prior to 1 July 2024, or whether the longer periods will continue to apply to those previously acquired properties.

In the meantime, if you are considering buying or selling property, feel free to contact a member of our property team to discuss your options.