How the changes to the tax system impact new builds and existing homes

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Only a few short years ago it was very difficult for Inland Revenue to prove that someone had bought a property for the purpose of resale, if they didn’t have a track record of buying and reselling properties. That changed with the ever-widening brightline test, which has added to the raft of ways in which Inland Revenue can tax the capital gain when a property is resold for profit.

The brightline period timeframes are as follows:

  • Two year rule – applying to properties purchased in the period from 1 October 2015 to 28 March 2018
  • Five year rule – from 29 March 2018 to 26 March 2021
  • Ten year rule – from 27 March 2021. This applies to properties acquired on or after this date and not considered a new build.

A number of changes gradually came into force since the introduction of the brightline test. Some of the key changes since 27 March 2021 are as follows:

New Builds

  • To encourage the building of new homes,” new builds” acquired on or after 27 March 2021 are subject to a shorter five year brightline test (rather than the ten year test applying to existing properties). The five year brightline test is still available, but only where the property is a new build acquired within 12 months of the Code of Compliance Certificate (CCC) being issued. The CCC must have been issued by the time the property is sold.
  • If the property is acquired 12 months after the CCC is issued, the ten year brightline test will apply.

New Build and Property Development Exemptions

  • The definition of a new build is generally a residential property that receives a CCC on or after 27 March 2020.
  • New builds of residential properties will remain exempt for 20 years from the date the CCC is issued and the exemption transfers with the property to anyone who owns the property during that 20 year period.
  • In addition to new builds and development properties, certain other residential or quasi-residential types of properties are unaffected. For example, if a portion of a main home is used to earn income (flatmate or boarder), hotels, motels and rest homes just to name a few.

Change of Use

  • The main home exclusion no longer applies on an all-or-nothing basis for the 10 year bright-line rule.
  • For residential properties acquired on or after 27 March 2021, including new builds, the government has introduced a ‘change-of-use’ rule. This will affect the way tax is calculated if the property was not used as the owner’s main home for more than 12 months at a time within the bright-line period.
  • This will likely affect people who buy a home after 27 March 2021 and then live away from it for more than 12 months to work somewhere else or travel. If they then sell within 10 years, they are liable to pay tax on the amount of capital gain apportioned to the period they were away.
  • If you change your use of the property from your main home or you subdivide your property during the time that you own it or you have engaged in a pattern of buying and selling a number of properties (including for any related entities), you may also have to pay tax on any increase in value.
  • A 12 month buffer period applies. This means that if a property switches to or from being your main home and the period when it is not your main home is 12 months or less, the change of use rules will not apply.

This article is not intended to provide any specific tax advice. We recommend that you check with your tax adviser to check whether any tax is payable in your situation


Please contact us if you would like more advice and need help with buying or selling a property.

Amy Cheng
Amy Cheng
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