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Changes to the Bright-Line Test

From 1 July 2024 it is proposed the three existing bright line tests will be abolished. In their place there will be a two-year bright line test. Bright line will apply if the bright-line end date is within two years of the bright-line start date. The two years will apply retrospectively from 1 July 2024 so that if the bright-line start date is before 30 June 2022 the bright-line end date will be 1 July 2024 at the latest.

Main home exclusion

  • 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. If it is being used more than 50% for main home then the exclusion from the bright-line test will apply. Note it is actual use of the property not intended use of the property.
  • There is also a time basis. The land must be used most of the time as the main home – more than 50% in total.
  • The main home exclusion cannot be applied more than twice in two years or where a person has engaged in a regular pattern of acquiring and disposing of residential land.
  • If a house is being constructed on the land, the time involved in the construction is excluded from the bright-line calculation. This change is retrospective to property purchased on or after 29 March 2018. Where a person has already returned bright-line income under the previous rules that would now not be taxable, they can apply for a reassessment.
  • Rollover relief will be available for transfers between associated person’s provided they have been associated for at least two years prior to the transfer. Similarly, a transfer to a trust can qualify for rollover relief where the beneficiaries have been associated to the transferor for at least two years prior to the transfer.
  • Rollover relief will also be available in certain circumstances to transactions with companies (including look through companies), partnerships and between trusts.

Unfortunately, with details changing all the time and at such speed, we need to add that the above content is correct at the time of writing as far as the author is aware and is very much subject to change. We have, to the best of our ability, acknowledged any shared content. All related links provided to the corresponding websites are subject to change as they are live links.

Source:  Tax-e-mail Issue No. 2403