Extension to bright-line test

Proposed policies related to housing were priorities for all sides during the recent election. The National party campaigned for tighter rules for investors to ensure they’re paying their fair share of tax, and they also proposed a billion-dollar housing infrastructure fund for new housing in high demand areas. New Zealand First’s priority was ensuring that only New Zealand citizens could buy land, while the Greens wanted the promotion of energy saving and resource conserving technologies for buildings.

Among Labour’s housing policies was its plan to extend the period behind the bright-line test. This test was introduced two years ago by the Tax Department and provides greater scope than the ‘intention test’, that is still in place. The intention test, as its name suggests, is based on the buyer’s intention to stay or sell, which made it less than precise in its tax estimations.

The bright-line test was brought in to more clearly and resolutely determine how much capital gains tax home buyers and sellers would have to pay on the property’s profit, should their sale be within two years of the purchase. The lengthening of this period from two years to five will apply to properties which are not owner occupied.

This extra three years of capital gains tax could well be a disincentive to investors, with negative gearing another focus of Labour’s policies. With results of a study by CoreLogic released last month showing that first home buyers make up 22% of the market, while investors are 39%, this change could see these figures even up.

In what has been an unusual election with periods of uncertainty, it’s no surprise that at first there was confusion around whether Labour would go ahead with this change to the bright-line test. It wasn’t mentioned in the initial coalition agreement with New Zealand First, nor was it in the confidence and supply document with the Greens. However, the government has now confirmed that other policies they plan to go ahead with also weren’t all included in these documents, and the bright-line test extension will be put forward.

Correction: The article previously incorrectly mentioned the bright-line test was replacing the intention test. The article has been updated to reflect that the intention test is not being replaced.