If you're a homeowner renting out a room to a flatmate and considering selling your property within two years of purchase, you might be wondering if you qualify for the main home exclusion under New Zealand’s bright-line test. Let's break down the key details and considerations.
What is the Bright-Line Test?
Effective 1 July 2024, the bright-line test will tax residential land sold within two years. The two-year period begins on the "bright-line start date," which is typically the date the land transfer is registered to the new owner under the Land Transfer Act 2017. However, there's an important exclusion for your main home, known as the "main home exclusion."
Main Home Exclusion Explained
The main home exclusion applies if the property sold is primarily used as your main residence. The key points to consider are:
More than 50% Use: For land sold on or after 1 July 2024, the main home exclusion applies if more than 50% of the land is used, for most of the bright-line period, for a dwelling that is your main home.
Fixed Presence: Determining whether the dwelling is your main home depends on factual circumstances such as where you reside and maintain a fixed presence. Simply renting out a room to a flatmate does not disqualify your home from being considered your main residence.
Primary Use: In most situations where you rent out a room to a flatmate, your home will still be mainly used as your residence. However, there can be exceptions where your use of the home is incidental to a primary purpose of running a rental activity.
Exceptions to the Main Home Exclusion
There are specific scenarios where the main home exclusion might not apply:
Frequent Use of the Exclusion: If you have used the main home exclusion twice within the two years immediately preceding the bright-line end date, you cannot use it again.
Regular Pattern of Buying and Selling: If you, or a group of people you are part of, have a regular pattern of acquiring and disposing of your main home, the exclusion may not apply.
Key Takeaways
Renting out a room in your home does not prevent you from qualifying for the main home exclusion under the bright-line test.
More than 50% of the land must be used as your main home for most of the bright-line period.
Be mindful of exceptions like frequent use of the exclusion and patterns of buying and selling homes.
Understanding these rules can help you navigate property transactions and ensure compliance with New Zealand's tax regulations. Always consider seeking professional advice tailored to your specific circumstances.
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