March 2021 Investment Property Tax Changes
You may have heard some buzz in the news over the past few days about the property market, or more specifically about controlling the increasing cost of housing through taxation. The Government has announced several new measures, mainly changes to taxation rules, which they think will help to cool the New Zealand property market. If you own a residential investment property then these changes could apply to you.
Here is a summary. As always if you have any questions about your specific situation please get in touch with the Villa team, we are always happy to help!
The bright-line test increases from five to ten years
Investment property purchased on or after 27 March 2021 will be subject to a ten year ‘bright-line’ test. This means that if the property is sold within ten years the profits are subject to income tax at up to 39%. Any property purchased after 29 March 2018 and before 27 March 2021, or any new build is subject to the current five year bright-line test.
These measures only apply to investment property. If your property was your main place of residence for the entire time you owned it, or you inherited the property it is not subject to any bright-line test.
Interest deductions on rental property income
Currently investment property owners can claim interest on their property loans as an expense to offset their rental income. The Government’s latest changes mean that no interest can be claimed as an expense against income from properties purchased on or after 27 March 2021. Interest on any new loans on existing investment properties also cannot be used to offset income.
Investors who purchased property before 27 March 2021 can still claim loan interest as an expense, however the amount that can be claimed will reduce by 25% each income year. The ability to claim interest as an expense will be completely phased out on all investment property from the 2025-26 financial year. It is expected that there will be an exemption for newly built homes, however this has not been confirmed by the Government as yet.
This new legislation will apply from 01 October 2021.
Questions?
These changes have come through quickly, so if you have any questions please don’t hesitate to contact the Villa team.
