New Zealand Capital Gains Tax. The Bright Line Rule?

April 10, 2020

Capital Gains tax has been a hot topic in New Zealand for many years. The Labour party was a big fan of capital gains tax while they were in opposition, however, following the tax working group recommendations for a capital gains tax, the Labour government chose to not implement a capital gains tax in New Zealand. Nevertheless, New Zealand does in fact have something very close to a capital gains tax, often referred to as the bright line tax.

capital gains tax nz

What is a capital gains tax?

A capital gains tax is a very simple tax which the majority of western counties around the world implement. It is a tax on any profits that you make on the sale of an asset. For example, if you buy a house for $1,000,000 and sell the house for $1,100,000 then you have made a profit of $100,000 and therefore may need to pay tax on the $100,000 profit. If the capital gains tax rate is 20% you will be required to pay $20,000.

What is the bright line rule?

New Zealand does not have a capital gains tax, however, as New Zealand does have an income tax the IRD deem any property that was sold with the intent of making a profit part of income. This means that from the sale, the seller must pay the correct amount of income tax on the profits from the sale. The intent statement in the tax law made it very difficult for the IRD to know whether or not to tax a person on the profits of the sale. You could just say that you never planned on selling but had to due to certain circumstances.

So the bright line tax rule was implemented to clearly define whether or not you should be taxed on the sale of a property.

The bright line rule is very simple. It states that you will have to pay tax if you sell a residential property within 5 years of the purchase date unless an exception applies.

How do I calculate the profit?

This is also very simple the calculation is as follows:

Profit = Sales Price – Purchase Price – Deductible Cost

  • The purchase price it what you purchased the property for. Let’s say $1,000,000
  • The sale price is what you sold the property for. Let’s say $1,120,000
  • Deductibles are costs associated with the purchase, sale and improvements. Let’s say $20,000

So in the above example the profit would be

$1,120,000 – $1,000,000 – $20,000 = $100,000 profit. This $100,000 would be added to you net income when filling out an IR-833 form.

What are the costs I can use to reduce my tax bill?

The deductible costs are any costs associated with the purchasing the property, improvement to the property and selling the property.

These may include;

  • The costs of improvements made ie. to a bathroom or kitchen
  • Cost incurred when selling the property. Such as the real estate agent fee. Check out our post here on selling a property.
  • Costs associated with lawyer’s fees when both buying and selling the property

Can I pay less tax if I lost money?

You can’t deduct the amount off of your normal PAYE tax, however, you can bring the loss forward and reduce the tax you pay on a future sale.

For example if you sold a property this year for a $50,000 loss and next year you sell a property for a $100,000 profit you most probably can reduce you taxable amount on the second property to $50,000. We highly recommend that you get some advice from a tax expert such as an accountant.

capital gains tax nz

What are the exceptions to paying the bright line tax?

  • It’s your family/main home. Please check the IRD website but the key is that you used the property as your main home for 50% of the time.
  • You inherited the property.
  • You’re the executor or administrator of a deceased estate.

Does the bright line rule apply to my commercial property?

No commercial property or farmland are excluded, the bright-line rule only applies to residential property.

Where can I get more information?

We have a handy calculator below which you can use to estimate the additional tax.

Please look at the IRD website and as always we recommend that you get the advice of experts.

IRD: Bright-Line Property Tax Rule

New Zealand Property Tax

Full legislation


Bright Line Tax Calculator

This calculator can be used to estimate the additional tax that you may be required to pay if the bright line tax rule applies to you. This calculator is only meant to be an estimate. Please always refer to advice from a tax expert such as an accountant.

No information is sent to Aframe or any third parties.

Annual Income:

Property Purchase Price:

Property Sale Price:

Expenses:



Capital Gains FAQ’s

Does New Zealand have a capital gains tax

Generally not on New Zealand investments, but applies to foreign debt and equity investments. New Zealand also can charge tax on the profits of a residential property sale if the property was sold within 5 years of purchase. Often known in New Zealand as the bright line tax rule. However this is deemed as income tax.

What is the bright line rule?

The bright line rule is very simple. It states that you will have to pay tax when you sell a residential property within 5 years of the purchase date unless an exception applies. It was implemented to clearly define whether or not you should be taxed on the sale of a property.

How do I calculate the profit?

Profit = Sales Price Purchase Price Deductible Cost

What are the costs I can use to reduce my tax bill?

The deductible costs are any costs associated with the purchasing the property, improvement to the property and selling the property.

Can I pay less tax if I lost money?

You cant deduct the amount off of your normal PAYE tax, however, you can bring the loss forward and reduce the tax you pay on a future sale.

What are the exceptions?

  • Its your family/main home.
  • You inherited the property.
  • Youre the executor or administrator of a deceased estate.

Does the bright line rule apply to my commercial property?

No commercial property or farmland are excluded, the bright-line rule only applies to residential property.