One of the most talked about changes of the Government's recently introduced housing package was doubling of the bright line period from five to ten years.
As well as the extension of the brightline period, of importance to those who own and live in their home and might want to rent it out, is the lesser known change, the change to the main home exclusion.
Main Home Exclusion
One of the key exclusions to the bright-line rule and the requirement to pay tax on any profit you make from the sale of a property, is the main home exclusion.
Pre-march 2021, if you met the criteria for the "main home" exclusion, then you could be exempt from paying income tax on the profit you made on the sale of that property.
Changes to the Exclusion
While an exclusion remains, if you purchased your home on or after 27 March 2021, and wish to rely on the "main-home" exclusion, there are some new criteria to consider.
Under the old rule, to qualify for the "main home" exclusion the IRD website sets out certain criteria to be met. For example you would need to have used more than 50% of your property as your main home and lived there for more than 50% of the time you owned the property.
Under the new rules, if you purchase a home on or after 27 March 2021, and sell within 10 years and your home is not used as your main home for certain continuous periods, 'you may have to pay tax on a portion of the profit from the sale'.
This means that if you purchase a home, live in it for a few years, rent it out for a period and then sell the property within the 10 year bright line period, you may be taxed on the portion of the profits you made in the period you rented out your home.
If you are looking to purchase a property, or restructure your property ownership arrangements and want advice, please get in touch to find out how we can help you.