Confusion remains around bright-line changes

It’s been 10 months since the Government announced an extension of the bright-line test in an effort to curb speculative demand by property investors, but confusion still remains about how the changes will apply, National’s Revenue spokesperson Andrew Bayly says.

“Extending the bright-line test to 10 years was just another tax policy which was never going to have an impact on house prices. What it has done instead has hit many Kiwis who aren’t speculators.

“At the time, Treasury warned that the increase could negatively affect renters who don’t want to or can’t afford to purchase their own home. Typically, this will be lower income households who are disproportionately younger people, Māori and Pacific peoples.

“Tax experts also warned of other side-effects of the bright-line extension, including forcing people to keep their existing home for 10 years, and long-term supply issues which could potentially increase rents.”

“If you move out of your principal home for more than 12 months within the 10-year period, then you will have to pay tax on the capital gain for the period that you didn’t live in it.

“This will affect people who have to relocate to another city for a year for their job and rent out their home – including teachers and the police, or those people who are posted overseas, such as defence personnel.

“And it gets worse. The bright-line test comes into play every time the ownership structure of a property changes.

“For example, if a parent goes 50/50 on a deposit with their child, and then five years later the child buys out the parent’s share, not only does the parent have to pay a capital gains tax on the increase in value, but the child’s bright-line period resets to zero, and they would therefore have to hold on to the property for another 10 years, otherwise they will have to pay a capital gains tax when they sell it.

“On top of all that, inflation is the highest it has been in three decades making it even harder for young people to get onto the property ladder.

“This has opened up a massive can of worms which the IRD still hasn’t sorted out, and created a numerous odd situations and loopholes.

“When the Government promised no new taxes during the last election, they were misleading. Instead, they have introduced complex ways to increase their tax take from ordinary New Zealanders.