An investor's title to a rental was transferred to him on 1 March 2024. He signs a binding agreement to sell it on 10 February 2026, settling in April 2026. The property was never his home. Does the bright-line test apply?
Correct Answer
B) Yes; he signed the sale agreement within 2 years of title transfer.
For property sold on or after 1 July 2024, Inland Revenue applies a 2-year bright-line period. For a standard purchase it starts when title transfers to the buyer, and for a standard sale it ends when a binding sale agreement is entered into. From 1 March 2024 to 10 February 2026 is under 2 years, so any profit is taxable unless an exclusion applies.
Why This Is the Correct Answer
The end date is the agreement date, which falls inside the 2-year period from title transfer.
Why the Other Options Are Wrong
Option A: No; settlement in April 2026 falls more than 2 years after he bought it.
For a standard sale the bright-line period ends when the binding sale agreement is signed, not at settlement.
Option C: No; property bought before 1 July 2024 is outside the bright-line test.
The 2-year test applies to sales on or after 1 July 2024, whenever the property was bought.
Option D: Yes, but only because property bought before July 2024 has a 10-year period.
For sales from 1 July 2024 the period is 2 years; the 5- and 10-year periods apply only to earlier sales.
Background Knowledge for Finance
Source: https://www.ird.govt.nz/property/buying-and-selling/when-you-need-to-pay/the-brightline-test
Exam Tip for Finance
Bright-line: start at title transfer, stop at the binding sale agreement, ignore settlement of the sale.
Common Mistakes to Avoid on Finance Questions
- •Measuring to the sale settlement date instead of the agreement date.
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