A supplementary order paper has been introduced to the latest Taxation Bill which will increase the 2 year Bright-line rule to 5 years.

The objective of increasing the rules is to capture property speculators and ensure they pay tax on gains, but also seeks to create more affordable homes by reducing property speculation and reducing competition in the market. The increase from 2 to 5 years will apply to anyone who acquires an interest in land from the date of Royal Assent which is expected in March.

The Bright-line rule provides that gains from residential land sold within 2, now to be 5, years of acquisition will be taxable. Main homes and some other situations are exempt from this provision. The purpose of this policy was to capture people who were buying and selling residential properties, but were not being easily caught by the existing land taxing provisions for buying land with the intention of sale. Intention was at times difficult to prove or properties were being rented short term making them investment properties.

In practice the Bright-line rules have captured a far greater amount of people that the Government had forecast, and some of this can be put down to the unforgiving nature of the rules. We have seen some examples where a change in circumstances or helping out other family members fall in to the rules were not structured correctly.

Now that the rule is increasing to 5 years, many landlords will now fall into the rules which is the clear intention, however we will also see a much larger amount of normal non-speculating New Zealanders fall in to the regime. More care will need to be taken with family structuring and similar transactions which generally do not impact speculation prices.

Just be aware that if you are buying a holiday home, a city apartment or a student flat while your children are studying, that there is a very high chance of capital gains being taxable moving forward.