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IMPORTANT Property Tax changes

Last week the government announced a range of changes in an attempt to “fix” the housing market. Much of this focuses on trying to curb the significant house price increases seen over the last year. There will be significant impact across the residential property sector.

Extension of the Bright-line test from 5 years to 10 years

The current bright-line period is 5 years. The Government has announced it intends to extend the bright-line period to 10 years for residential property except newly built houses (new builds). Inherited properties and those which have been the owner's main home for the entire time they owned it will continue to be exempt from all bright-line tests.

The date you acquire property determines whether the bright-line period is 5 or 10 years.

The main home exemption is being modified with effect from 27 March 2021. The exemption applies where a house has been used for more than 50% of the time as a main home. The new rule will require an apportionment calculation if the property was not a main home for more than 12 months.

Inland Revenue have some examples of how this affects various scenarios on a fact sheet here

Removal of interest deductibility

The Government is proposing to remove the ability to claim an interest deduction from the 1 October 2021 on residential rental properties with no ability to claim an interest deduction where the property was purchased on or after 27 March 2021, and a reducing interest deduction where the property was purchased before 27 March 2021. Under the proposal, it will not be possible to claim an interest deduction on residential rental properties after the end of the 2025 tax year (31 March 2025 for standard balance dates).

The proposal would not impact on property developers, or where a loan for business use is secured against a residential property. In addition, the Government is considering whether exceptions would be made on new builds acquired as a residential rental property and properties subject to the bright-line test, along with other details. These are being worked on now and will only be available later this year in Bill form (noting the 1 October start date).

Additional 3.8 Billion boost to the Residential Development Response Fund

The government have also announced a 3.8 billion in addition to the $350 million that was already committed to the Fund.

The Fund aims to increase the supply of houses, particularly affordable homes that low to moderate income households can afford (whether for rent or home ownership), is critical to addressing New Zealand’s housing affordability issues.

The Fund will be focused on priority locations where high housing need has been identified including Kāinga Ora large scale projects.

The Housing Acceleration Fund will increase the pace and scale of housing delivery by:

  • an Infrastructure Fund to unlock a mix of private sector led and government led developments in locations facing the biggest housing supply and affordability challenges

  • additional funding for the Land for Housing Programme to accelerate development of vacant or underutilised Crown owned land, operate in more regions, and deliver a broader range of affordable housing options for rental and home ownership

  • A Kāinga Ora Land Programme for strategic land purchases to increase the pace, scale and mix of housing developments (including more affordable housing).

We believe that residential property investors need to take stock to determine how these new rules will apply to their individual situations. Call us and arrange to meet so that you are making the best decisions possible.

If you are looking at investment property now - again talk to us to ensure you understand the implications of these new rules.

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