Grant Robertson denies family homes subject to bright-line test

The Finance Minister has vehemently rejected accusations the Government is bringing the family home under the bright-line test.

The bright-line test introduced under the previous National Government made New Zealanders who purchased and then sold a residential property - excluding main/family or inherited homes - in under two years pay a tax on any gains. 

Labour in 2018 extended the period to five years and, on Tuesday, Jacinda Ardern announced that would shift out to 10 years. New builds are exempt from the change.

However, a less-noticed alteration is to how a property will be treated when it is not being used as a main or family home. 

Currently, a main home is excluded from the bright line test as long as the owner has used it as their main home for more than 50 percent of the time they've owned it and more than 50 percent of the property is used.

The Government intends to make a change so that the bright-line test comes into play if a property acquired after this coming Saturday isn't used as an owner's main home for more than 12 months at a time within the bright-line test period (10 years). The tax would be calculated on the time it is not used as a main home.

Grant Robertson denies family homes subject to bright-line test
Photo credit: IRD.

National is rallying against that, suggesting it may negatively impact people who have to move away from their main home for work or to look after a sick family member for a period over 12 months.

"If you are one of these first home buyers and you manage to buy a house, and you get transferred in your work or you lose your job and you can't live in your house for over a year, now you are going to get subject to this capital gains tax," Judith Collins said on Wednesday.

Facing questions on The AM Show about the change, Finance Minister Grant Robertson reiterated that "whenever your home is your family home, it is not subject to the bright-line test".

"The change that we are making is that for periods of time beyond 12 months - you have a 12-month buffer in which you might be needing to move around or do something - beyond that, we will measure the bright-line test for the actual amount of time a property is your family home or not your family home."

The AM Show host Duncan Garner said that meant the bright-line test now applies to family homes, something Robertson on Tuesday definitively stated was not the case.

Robertson vehemently pushed back on Garner's suggestion. 

"No it doesn't. It absolutely doesn't. No, Duncan. It absolutely does not. While the property is your family home, the home you live in, the bright-line test does not apply."

The minister said if you move out of the house for more than a year "then it is not your family home".

"What we are saying is if it is your family home, no bright-line test applies. But beyond a 12-month period, if you are living somewhere else and renting it out, then it is clearly not your family home and then a fairness test would say the bright-line test should apply."

This is how the tax would be calculated, according to IRD:

"The owner of a property subject to the change-of-use rule will be required to pay income tax on a proportion of the profit made through the property increasing in value, calculated as follows:

  • subtract the purchase price from the sale price
  • subtract the cost of capital improvements the owner has made
  • subtract the costs to buy and sell the property, and
  • multiply the result by the proportion of time the property was not being used as the owner's main home."

National's housing spokesperson Nicola Willis has described it as another broken promise by the Government.

On Tuesday night, she put the issue to Revenue Minister David Parker.

"I would encourage the Minister to address these questions now for the sake of clarity, or else face the wrath of owners of family homes across the country, who are very concerned about the new taxes his Government appears to be ready to place on their home if for any reason, whether misfortune or work - that they're military or that they're a diplomat - they have to, for some reason, live outside of their home for a period of 12 months or more and choose to rent that home out during that period."

Parker responded by saying if there was a period of more than 12 months where the property is rented out, such as for four years, "then it's changed to be an investment property in respect of those four years".