The wait continues for those interested in knowing the details of a major law change that will require residential property investors to pay more tax.
A spokesperson for Revenue Minister David Parker told interest.co.nz details of exactly what the removal of interest deductibility will look like will “likely” be unveiled early next week, only days ahead of the change taking effect.
The Government in March announced that from October 1, most residential property investors will gradually no longer be able to deduct interest as an expense when paying tax. The rules already apply to investors who bought property on or after March 27.
The move came as a surprise and is aimed at cooling the housing market by easing demand for property by investors.
However, the Government is yet to detail exactly what the rules will look like, and what will constitute a “new build”, which will be exempt from the change.
The spokesperson for Parker said it was still “likely” the rule change would be made through a Supplementary Order Paper (SOP) linked to the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Bill.
The pinch for property investors is that even if the SOP is published early next week, it could be tweaked before the bill is passed.
Chartered Accountants Australia and New Zealand tax lead, John Cuthbertson, expected the bill to be passed by March 31, 2022.
So, property investors might have to wait until then before all the details of the rule change are set in stone, even though the change applies from before then.
The Bill is having its first reading in Parliament and is yet to go through the select committee process, where the public will have an opportunity to provide feedback on it.
A public consultation on the removal of interest deductibility has already occurred.
Asked whether he would consider making further policy changes to improve housing affordability if the actions the Government has taken to date don’t have enough of an effect, Finance Minister Grant Robertson said: “Let’s give them a chance to have an effect.”
Robertson said he believed the interest deductibility change was a “very significant move”.
Without the details of the rule change ironed out, government officials have been unable to estimate how much it will cost investors.
Treasury’s best guess was that it would’ve costed $800 million if fully implemented in 2018/19, and had current interest rates prevailed.
Here’s a brief summary of what the removal of interest deductibility is proposed to look like:
- Deductions for interest expenses on residential properties will be restricted from 1 October 2021.
- Interest deductibility on a mortgage on a residential investment property acquired before 27 March 2021 will be gradually phased out between 1 October 2021 and 31 March 2025. Non-grandparented interest would immediately cease to be deductible from 1 October 2021.
- Interest deductibility on a residential investment property acquired on or after 27 March would immediately cease to be deductible from 1 October 2021, unless an exemption applies.
- Property development and new builds would be exempt from the interest limitation rules. In addition, new builds would be subject to a five year brightline test, rather than the ten year test.
- Non-residential properties (for example commercial or industrial properties) would not be subject to the new rules. Also excluded would be employee accommodation, farmland, care facilities such as hospitals, convalescent homes, nursing homes, and hospices, commercial accommodation such as hotels, motels and boarding houses retirement villages and rest homes.
- The main home would not be affected by the new rules. Interest related to any income-earning use of an owner-occupier’s main home such as a flatting situation would continue to be deductible.
- Community housing providers will not be affected by the interest limitation rules if they are charities or otherwise tax exempt. The Government also proposes to exempt Kāinga Ora and its wholly owned subsidiaries from the interest limitation rules.
26 Comments
It's just a gimmick that we are concerned & doing something. The implementation is in the future so there is lot of time & what ever will be the rules, expect this summer to be hotter for property market.
The property prices should be, not double but more than double from the time Labour join the office 2017 & they are absolutely making no mistake to get it wrong.
Kiwis have to pay for 6 years of labour govt, they haven't said it but they will make you pay. Such level of incompetence is never welcomed anywhere.
A gimmick were it not for unfortunate consequences. Frankly this is a Labour Govt foisting ad hoc "whack a mole"LP housing policies onto the population. Policies of the like you might see conceived in a college common room. Turning accommodation providers into de facto tax collectors. Rents will increase to cover the differences, property prices will continue to rise. An overall shortage of supply. As building becomes more expensive, spilling over onto the existing stock. Sadly homelessness will also increase. Would have been better for all concerned if they'd just done nothing.
HUGE BLUNDER BY THE GOVERNMENT
The 30% increase in property prices over the last 12 months has led to greater inequality between home owners and renters. Renters now face an average 10% or so rent increase over the next 12 months & this is likely to increase further as supply decreases.
There will also be greater inequality between home owners that get tax free capital gains and property investors that now need to pay tax on capital gains as well as increased taxes from inability to claim interest deductions.
The simple solution for the well-off is to get out of rental properties, invest more in the family home & get tax free gains.
The net result is a diminishing supply of privately owned rentals & a growing crisis for renters as higher than normal rent increases force more people into emergency accommodation.
The government’s & RBNZ’S policies have created more inequities in the system and the main losers are renters. If interest rates had been kept higher and if there had been less printing of money, house prices would now be much more affordable.
Instead home owners will be the real winners from the government’s policies and renters will be the real losers.
The government needs to take responsibility for the rental crisis that they have created. It is likely they will be punished at the next election for this huge blunder.
Your post just reinforces the point that it’s not about investment but capital gains.
There are a host of things they can do.... requires business rates similar to commercial, 15 yr loan terms, no interest only loans etc
But stopping the runaway train will mean pain.
they will do nothing until your local coffee starts costing $7 and over two hundred to fill your car. Then they will jam the rates up and the whole house of cards will come down.
Next year? The year after? Who knows but it’s coming!
Another step towards communism by this hopeless government.
Doesnt affect big land lords who can quit all debt by just selling one or two houses.
But Mum and Dad investors, or people trying to get a rental as their first house, just got thrown under the bus.
Labour wants everyone to be servants and serfs, all working 9 to 5 till they are 85, and not be able to retire.
Well, lets see if it holds...
It's government that created this imbalance through poor immigration and lending rules 10-20 years ago, now they want landlords to pay for their mistake
National and the other parties better be getting their act together and possibly getting rid of crusher collins who frankly is so polarising that they will never get a majority vote
They may change the law but any new government could make this a major policy change to buy voters and roll it back in a few years
Still the underlying issue is the same Supply and demand out of balance - we have to make affordable housing for 1st home buyers and keep costs down instead of creating more market imbalances and opportunities for minority groups to take advantage of a situation
Thank you thank you Labour. As a white middle class residential and commercial investor this will create lots more income for me. All my residential rents will go up to cover the new tenancy tax regardless of my interest liabilities. If I need to borrow money I will just do it against my commercial rentals. Boy those guys and girls in Wellington are dumb.
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