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For many decades the backbone to a kiwi family’s retirement plan was to own a rental property or properties.  In some cases, the properties have been bought with no money down, having leveraged against equity in their own homes.  For the last decade or so, successive Governments have had political pressure applied to make housing more affordable.  The main tool used by all the main political parties has been to make rental property investment less attractive and encouraging investments in other areas.

The Government announced on 23 March 2021 that there were to be some changes to the rules for Landlords.  The two main changes were:

The extension of the bright-line test from five to ten years

Broken down the key message regarding bright-line is:

  • If you bought a property after 26 March 2021, you may have to pay tax on any equity gain if you sell the property less than ten years later.
  • If you bought a property after 28 March 2018, you may have to pay tax on any equity gain if you sell the property less than 5 years later.
  • If you are thinking of selling your investment property and you are unsure whether you will be subject to the “Bright-line” test or not, please contact your Accountant to discuss.  Our firm does not give taxation advice.

The removal of tax deductibility on interest for rental properties.

Broken down the key message regarding the removal of tax deductibility is:

  • From 1 October 2021, interest became no longer tax deductible for money borrowed after 27 March 2021 for rental properties.  This includes new loans for renovations and repairs to existing rental properties.
  • Tax deductibility for existing loans on rental properties bought before 27 March 2021 was reduced to 75% from 1 October 2021, then will be reduced further to 50% from 1 April 2023, then to 25% from 1 April 2024 and finally from 1 April 2025 there will be no tax deduction allowed for interest expense on rental property.
  • There is an exemption to this rule announced for new builds.  A new build is defined as having a Code of Compliance Certificate dated on or after 27 March 2020.  This includes new Builds bought off the plans from a developer.
  • For the best advice, contact your Accountant to discuss.  As mentioned above, our firm does not give taxation advice.

 

Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose. We do not give financial, taxation or investment advice and nothing in this article is intended as such.