An owner lives in 40% of a house and rents the other 60% as a separate flat for the whole time she owns it. She sells within two years. Can she use the bright-line main home exclusion?
Correct Answer
A) No; she used 50% or less of the property's area as her main home.
For sales from 1 July 2024, Inland Revenue says the main home exclusion applies only if the owner used more than 50% of the property's area as their main home and lived there as their main home for more than 50% of the bright-line period. If either is 50% or less the exclusion does not apply. Inland Revenue's own example of 40% occupied and 60% let as a flat fails.
Why This Is the Correct Answer
Her main-home use covered only 40% of the area, so the area test fails.
Why the Other Options Are Wrong
Option B: Yes; she lived there as her main home for the whole bright-line period.
Both tests must be met; living there throughout does not help when her share of the area is 50% or less.
Option C: Yes, but only the part she occupied is excluded and the flat is taxed.
Inland Revenue says that if either test is 50% or less the exclusion does not apply at all.
Option D: No; the exclusion is lost whenever any tenant occupies part of a home.
Some letting is compatible with the exclusion; the test is whether main-home use exceeds 50% of the area and period.
Background Knowledge for Finance
Source: https://www.ird.govt.nz/property/buying-and-selling/when-you-need-to-pay/the-brightline-test/exclusions-to-the-brightline-test
Exam Tip for Finance
Two 'more than half' tests, area and time; both must be passed.
Common Mistakes to Avoid on Finance Questions
- •Assuming the exclusion can be split so that only the occupied part is tax-free.
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