Bright-line test and lifestyle blocks

14 March 2023

Lifestyle block owners … are you selling? Do you need guidance on the definition of residential land for the purposes of the bright-line test?

The bright-line test applies to the sale of residential land occurring within the bright-line period of either 5 years (if the seller acquired the land after 29 March 2018) or 10 years (if the seller acquired the land after 27 March 2021).

The definition of residential land includes:

  • land that has a dwelling on it;
  • land for which the owner has an arrangement that relates to erecting a dwelling; or
  • bare land that is allowed to have a dwelling on it under the relevant operative district plan.

There are two bright-line exclusions which apply to a lifestyle block.

  1. Farmland exclusion. This exclusion will apply where the land is, or could in its current state, be used for a farming or agricultural business carried on by the owner.

    In the context of the bright-line test and the definitions of residential land and farmland, a farming or agricultural activity is when a lifestyle block is being used for:
    • cultivating and growing crops, including horticulture and viticulture;
    • breeding or rearing livestock, including poultry and bee keeping, or;
    • forestry.

    In addition, the farming or agricultural activity must be carried on as a business. Whether a lifestyle block is being worked in the farming or agricultural business of the seller is a question of fact. Many owners of lifestyle blocks will keep animals or grow crops or trees on their land, but if the livestock or produce of the activity is not sold (or not intended to be sold), then there will be no business activity. Even if the livestock or produce is sold, the owner may not be able to demonstrate that they are carrying on that activity in an organised and consistent way with the intention to profit from the activity, which is required for the activity to be a business. For many lifestyle blocks, the size and nature of the property will limit the scale of operations that can be carried on, which can make it difficult to satisfy the business test.

    In most cases, lifestyle blocks will not qualify for the farmland exclusion.

  2. Main Home exclusion:This exclusion will apply to a lifestyle block where:
    • (a) more than 50% of the area of the land has been used for the seller’s main home. This includes curtilage (ie; yard, gardens etc) and other land used for residential purposes. Examples of other land used for residential purposes could be:
      • areas set aside for growing food for domestic use; or
      • areas for pet animals; or
      • areas used to enhance the enjoyment or aesthetic value of the dwelling i.e., a reasonable amount of park land or covenanted native bush that is used to provide a green vista, retaining or shelter would be an area that enhances the enjoyment of a dwelling; and
    • (b) The land has been used in that manner for more than 50% of the time the seller has owned the land.

    There are three points to note about the “main home” definition:
    • A person can only have one “main home” under this definition;
    • To be the “main home” of a person, a dwelling must be mainly used as a residence by the person (i.e., a home);
    • If the person has more than one home, the main home is the home with which the person has the greatest connection.

The Main home exclusion is currently an “all or nothing” test in relation to the use of the land for more than 50% of the time that the seller has owned it.


Bob and Joan own a 2 hectare property which holds 1.5 hectares of avocado trees. The 1.5 hectares of avocados are leased to an avocado grower who takes care of the trees including spraying, mowing between the rows of trees and picking fruit. The lease gives exclusive possession to the avocado-growing company and Bob and Joan do not go into the avocado orchard. The balance of the land (0.5 hectares) is used for a house that Bob and Joan use as their main home as well as a flower garden, vegetable garden and a paddock for grazing Joan’s two horses.

Bob and Joan sell the property with settlement taking place on 1 June 2021 (within 10 year bright-line period). Will Bob and Joan be captured within the bright-line rules for the property?

The farmland exclusion will not apply as the “farming or agricultural” business is not carried on by Bob and Joan (rather, it was being worked in the avocado grower’s agricultural business).

The main home exemption will not apply as the area of dwelling including curtilage (0.5 hectares) is less than 50% of the land.

Therefore, Bob and Joan’s sale will fall within the 10 year bright-line rules on the entire property with no apportionment.

It can be easy for a lifestyle block to fall outside both the farmland and main home exclusions with the result being that the sale will be subject to the bright-line rules.

There is currently a proposal to amend the bright-line test as it relates to lifestyle blocks to incorporate a land use apportionment rather than the existing “all or nothing” test. It’s proposed that the portion of land containing the main home is relevant in determining how much of the sale proceeds are taxable under the bright-line test.

Using the scenario above, the proposed changes would apportion 75% of the sale proceeds (1.5 hectares avocado) to be taxable under bright-line test and 25% (0.5 hectares dwelling/curtilage) of the sale proceeds to fall within the main home exclusion. Any deduction in the purchase price will be apportioned in the same manner.

Although the proposed changes are more palatable than the current “all or nothing” apportionment, it’s arguable that a dwelling (with curtilage) on a lifestyle block could be valued increasingly higher than the proposed 25% apportionment under the proposed changes.

If you are considering selling your lifestyle block and would like to discuss whether you fall within the current bright-line test for your property, we recommend you contact your accountant and our Corporate & Commercial team at NWM.

Corporate & Commercial Team