Bright line test on property held briefly

Residential rental property owners will know they could be subject to tax on any gain on sale if they’ve owned the property for only a short period of time.

The name for this short period is “the bright line test”.

There were three bright line tests – for two years, five years and 10 years. Effective from 1 July 2024 it is proposed to replace the three bright line tests with just one test.

It will be for a two-year period regardless of whether the property was bought before or after 1 July 2024.

Note the start of the bright line test is from the date of settlement on purchase. It is not from the date of signing the sale and purchase agreement, unless it is a purchase off the plan in which case it is the date the agreement is signed. This has always been the case. The bright line period ends at the time of signing a sale and purchase agreement for the sale of property.

Main home exclusion

Here are some points to remember:

Where the bright line end date is after 1 July 2024 the main home exclusion will be based on the predominant use of the land.

  • The land must be used most of the time as the main home.
  • The exception is for a new build. When determining the predominant use, you ignore the period under construction.

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