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Income Tax Act 2007

Recharacterisation of certain transactions - Rollover relief from the bright-line test

FD 1: Relief from bright-line test for transfers between associated persons

You could also call this:

“Some sales of homes to family or friends don't have to follow the bright-line test rules.”

When you sell residential land to someone you are associated with, the bright-line test might not apply. You are associated with someone if you have a certain relationship with them, like family or business, for at least 2 years. The land is treated as if it was sold for the price the original owner paid for it.

If you sell land to a trust, the trust’s beneficiaries must be associated with you, except for some special cases like charities. The person buying the land gets the same bright-line start date as the person selling the land. This start date depends on when the original owner bought the land, which could be before or after 27 March 2021.

When working out if the main home exclusion applies, the seller’s use of the property is counted as the buyer’s use. For example, if the seller used the property as their main home for a year, this is counted as the buyer’s use. Some rules about look-through companies and partnerships are ignored when working out if people are associated.

This rule does not apply if it has already been used for the same land and less than 2 years have passed since the first sale. You can find more information about associated persons in sections YB 2 to YB 13. You can also find more information about the bright-line test in sections CB 6A and CB 16A.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS974731.

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FD 2: Relief from bright-line test for Māori rollover trusts, or

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Part F Recharacterisation of certain transactions
Rollover relief from the bright-line test

FD 1Relief from bright-line test for transfers between associated persons

  1. This section applies for the purposes of sections CB 6A and CB 16A (which relate to the bright-line test for residential land) and Part D (Deductions) when residential land is disposed of by a person (person A) to another person (person B) who is—

  2. a person associated with person A under any of sections YB 2 to YB 13 (which relate to associated persons) at the date of the disposal and for at least 2 years before that date; or
    1. a trustee of a trust in which all beneficiaries, other than person A in their capacity as a beneficiary, are—
      1. associated with person A at the date of disposal and for at least 2 years before that date, except for beneficiaries aged less than 2 years and persons who have become associated with person A due to adoption, marriage, civil union, or de facto relationship who must be associated with person A since birth, adoption, marriage, civil union, or the start of the de facto relationship, as applicable; or
        1. an association, club, institution, society, organisation, or trust not carried on for the private profit of any person whose funds are applied wholly or principally to any civic, community, charitable, philanthropic, religious, benevolent, or cultural purpose, whether in New Zealand or elsewhere.

        2. The disposal is treated as a disposal and acquisition, at the date of disposal, for an amount that equals the cost of the residential land to person A.

        3. Person B’s bright-line start date for the land is person A’s bright-line start date.

        4. For the purposes of subsection (3), person B’s bright-line start date is—

        5. the date of person A’s bright-line acquisition date, if person A acquired the land before 1 July 2024 and on or after 27 March 2021:
          1. 27 March 2021, if person A acquired the land before 27 March 2021.

            1. For the purposes of determining whether section CB 16A (Main home exclusion for disposal within 2 years) applies, person A’s use of the property is attributed to person B (for example, if person A used the property as a main home for 1 year, this is attributed to person B).

            2. For the purposes of determining association under subsection (1)(a) and a disposal between a person who has an effective look-through interest for a look-through company and the look-through company or a person and a partnership, sections HB 1 (Look-through companies are transparent) and HG 2 (Partnerships are transparent) are ignored and association is determined under section YB 12 or YB 13.

            3. This section does not apply to a disposal of residential land if the section has already been applied to a disposal (the first disposal) of the residential land and 2 years have not passed from the date of the first disposal.

            Notes
            • Section FD 1: replaced (with effect on 1 July 2024), on , by section 61(1) (and see section 61(2) for application) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).