What is the bright-line property rule?
Under the current rules, the bright-line tax rule means that if you sell a residential property you have owned for less than 10 years, you may have to pay tax on the profit. On 1 July 2024, this 10-year brightline period will reduce to 2 years.
What are the relevant dates?
Currently, properties purchased between:
- 29 March 2018 and 27 March 2021 have a bright-line period of five years.
- after 27 March 2021 have a bright-line period of ten years unless it is a new build home, in which case it has a bright-line period of five years.
The changes on 1 July 2024 will mean that any properties purchased before July 2022 will no longer be subject to the bright-line rule, because after 1 July 2024, the sale of those properties will have occurred after at least two years.
What about your home?
Generally, the bright-line tax rule does not apply if you sell your main home, and this will not change. However, to qualify for the main home exclusion, you must:
- use more than 50% of the property as your main home; and
- use the property as your main home for more than 50% of the time you owned it.
If you buy another property as your main home, that new home will also be excluded as long as the above applies.
Other exemptions?
In addition to the main home exemption, there are also exemptions that apply where:
- The property is transferred or received as an inheritance under an estate;
- A couple are separating or dividing relationship property;
- The rollover relief rules apply, i.e., there is a transfer to an associated person or entity (for example, a property settled on a trust or distributed from a trust).
Does this affect you?
If you are planning to sell a residential property, particularly one that is not your main home (for example, a residential rental or beach house), you should talk to your lawyer or accountant first.
If you are an investor or need qualified advice, our Property team are here to help.