Bright-Line Rule and Roll-Over Relief: What Property Owners Need to Know

 

The 2024 amendment to New Zealand’s bright-line rule shortened the taxable period for residential property sales back to two years, simplifying what had become one of the more complex areas of property tax. While the period itself is now shorter, roll-over relief has become increasingly important — allowing ownership changes within families, trusts, and closely held companies to occur without triggering a bright-line tax in many situations.

At Goodwill Law, we are seeing more clients restructure ownership to align with family, trust, or business objectives. Understanding when roll-over relief applies (and when it doesn’t) is essential to avoid unexpected tax exposure when transferring property between related parties.

What is the bright-line rule?

The bright-line rule treats gains from the sale of residential land as taxable income if the property is sold within a specified period — the “bright-line period” — after it was acquired.

As of 1 July 2024, the bright-line period for most residential property sales is two years. If you sell within that time, any gain may be taxed unless an exemption or exclusion applies, such as the main-home exclusion or roll-over relief.

The rule captures most residential property, including houses, apartments, and bare residential land. It generally doesn’t apply to farmland or business premises.

Understanding roll-over relief

Roll-over relief allows ownership of residential property to change without resetting the bright-line clock, provided that the underlying ownership and control effectively remain the same. It recognises that some transfers occur for genuine reasons other than sale or profit — for example, moving property into a family trust, updating ownership between spouses or partners, or reorganising business holdings.

Roll-over relief may apply where:

  • Property is transferred between a person and their family trust, and the same person continues to control the trust and benefit from it.

  • Property is transferred between associated persons — for example, between spouses, or between companies and shareholders that have remained closely associated for at least two years.

  • The transfer occurs under a relationship-property or separation agreement.

Where roll-over relief applies:

  • The transfer is treated as if the new owner acquired the property at the same time and cost as the previous owner; and

  • The bright-line period continues uninterrupted from the original purchase.

When roll-over relief does not apply

Roll-over relief will not apply where:

  • The transfer changes the true economic ownership, such as by bringing in unrelated parties or altering trust control;

  • The transfer is between parties who have not been associated for at least two years before the transfer;

  • A trust transfer includes beneficiaries who are not family members or charities;

  • The property has already had roll-over relief applied within the past two years; or

  • The transfer is poorly documented or inconsistent with legal and tax requirements.

If relief doesn’t apply, the bright-line period resets and a later sale within two years may trigger tax — even if the property has been held by the family group for much longer.

Common examples

1. Transferring your home to your family trust

If you sell your home to your family trust and remain the main settlor and beneficiary, roll-over relief will usually apply. The trust “steps into your shoes”, keeping your original purchase date and cost. A later sale by the trust would only be taxable if it occurs within two years of your original purchase date.

2. Moving an investment property into a company

If you and your spouse own an investment property personally and transfer it into a company you both own equally — and you have been associated for at least two years — roll-over relief can apply.
However, if you later sell shares in that company to a third party, the earlier relief remains valid, but any future land transfers may no longer qualify.

3. Relationship separation

Transfers made under a relationship-property or separation agreement are generally eligible for roll-over relief, ensuring neither party is unfairly taxed when dividing assets.

4. Inheritance

Inheritances are not “roll-over” transactions but are excluded from the bright-line rule altogether. Property that passes through an estate to beneficiaries is outside the bright-line test.

Why legal advice matters

Roll-over relief is highly technical and depends on detailed “associated-person” rules and timing requirements. Getting it wrong can result in significant tax liability.

Key considerations include:

  • Association: Relief applies only where the parties are and have been closely associated for the required period.

  • Documentation: Sale and transfer instruments, valuations, and ownership structures must align with roll-over criteria.

  • Timing: Certain events (such as a trust resettlement or later share sale) can affect whether future transfers remain eligible.

  • Disclosure: Even where roll-over applies, Inland Revenue may require details of the transfer to be disclosed in your return.

If the property was originally acquired before 27 March 2021, special transitional rules may adjust the bright-line start date to that point — meaning some older properties can still fall within the test.

How Goodwill Law can help

At Goodwill Law, we specialise in bridging property law and tax structuring. We can:

  • Confirm whether roll-over relief applies to your situation;

  • Prepare the correct documentation — such as deeds of transfer, declarations of trust, or sale agreements — to ensure compliance;

  • Coordinate with your accountant to align the transfer with your tax reporting;

  • Advise on the most effective ownership structures to preserve relief eligibility; and

  • Support your long-term planning for trusts, companies, and family succession.

Key takeaways

  • The bright-line period for most residential property sales is now two years.

  • Roll-over relief allows many legitimate family or restructuring transfers to occur without bright-line tax.

  • Relief only applies where underlying ownership remains substantially the same, and association requirements are met.

  • Roll-over can be used only once per property in any two-year period.

  • Professional advice is essential — small documentation or timing errors can invalidate relief.

Thinking about transferring property into a trust or company?

Get in touch with Goodwill Law, New Plymouth’s property and commercial law specialists. We’ll ensure your transaction is structured and documented correctly — protecting you from unnecessary bright-line tax and ensuring peace of mind.

General information only – not legal or tax advice. Seek professional advice for your specific circumstances.

 
Will Downey