Property Bright Line Test working well

Property Bright Line Test working well

“Recent CoreLogic data shows that flipping or rapid on-selling of houses is not as common as people may believe” says Andrew King, Executive Officer of the NZ Property Investors’ Federation

There have been many articles reporting cases of houses being rapidly on-sold or flipped, painting a picture of property speculation being rife and a major cause of increasing house prices.

CoreLogic data shows that 7% of Auckland sales in 2016 were properties that were sold within a year. This compares with 11.7% at the peak of the last boom during the mid-2000s.

A likely reason for this decrease is the Inland Revenue crackdown on property traders and the introduction of the two year Bright Line Test.

"It was a common belief that you didn't have to pay tax if you bought and sold property. However the Bright Line Test has made it absolutely clear that you do" says Andrew King.

However the Bright Line Test also confirms that home-owners can trade properties that they live in without having to pay any tax. Homeowners can buy, do up and sell their homes for a profit once a year without having to pay any tax.

"People who do this are not classed as property traders, while people who don’t live in a property and do the same thing are classed as traders" says King. “Yet all these private transactions would be captured in the property flipping data and attributed to property speculators.”

As only 7% of properties are on-sold within a year, with the majority likely to be sold by homeowners, this means that the Bright Line Test is working well.

"Calls for the Bright Line Test to be extended beyond two years are misinformed" says King. "Such a move would change the test from one affecting traders and speculators towards a defacto capital gains tax on rental property. All this would do is reduce supply of rental houses and increase rental prices. That's the last thing first home buyers would want".

ENDS

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