The Coalition Government has decided to phase in interest deductibility for landlords more slowly than promised in the National–Act coalition agreement.
Act Party leader David Seymour and Revenue Minister Simon Watts announced interest deductibility for rental properties would be phased in from the start of April 2024.
This is a change from the coalition agreement which promised to begin the phase in with a 60% reduction in the 2023/2024 financial year, followed by 80% and 100% in the years after.
That would’ve allowed most landlords to claim the tax break retrospectively, back to April 2023, and the Government may have had to issue refunds — an unconventional move.
Instead, the coalition has agreed to wait for the 80% phase on April 1 this year, avoiding the headache and expense of backdating the policy.
The press release issued by Seymour on Sunday afternoon did not acknowledge the policy had been changed from the coalition agreement.
“Help is on the way for landlords and renters alike. The Government’s restoration of interest deductibility will ease pressure on rents and simplify the tax code,” it said.
“Landlords have been hit with a double whammy of rising mortgage interest rates and increasing interest deductibility limitations during a cost-of-living crisis. These costs are inevitably passed on to tenants, one of the reasons New Zealand has all time high rental costs”.
However, in a press conference Seymour was asked about the change in policy.
The Act Party leader said bringing in the 60% mortgage interest deductibility for the current tax year was not worth the work required.
“To have gone to 60% retroactively would have complications probably not worth the amount of benefit it would have given,” he said.
It was still the best policy for New Zealand and phased mortgage deductibility back in faster than any other party would’ve done without the Act Party in Government, Seymour said.
Watts incorrectly said the policy was being delivered as promised in the agreement.
“What we are delivering today is what we promised and articulated in our coalition agreement and Kiwis should be pleased that another thing has been ticked off”.
The substantial part of the policy is happening as promised in the agreement but with a meaningful change to when it begins to take effect.
118 Comments
Property market after current government has killed foreign buyers policy and now delaying deductability:
Not before the government is done signalling to the young Kiwi workers that they should either leave for greener pastures or live here in perpetual servitude of the housing Ponzi.
Just exactly who do they think are going to build our roads, fix our pipes, work in our hospitals and pay PAYE in this country. If they think migration is the answer, the previous government's "open-door visa" experiment clearly failed due to limited interest among genuinely skilled migrants in moving to NZ.
What's worse is as this massive infrastructure gap widens further alongside the government fuelling the property obsession in NZ, wages will increasingly be more out of whack with cost of living, thus making NZ even less attractive to global talent.
As they still seem to in many cases be working hard to prevent folk from building more on their own land in Wellington, Auckland etc, we can guess a next manifestation of entitlement mentality will be them seeking to make the working Kiwis fund infrastructure to their land rather than seeing their rates increase to what is necessary too. Another disincentive to the productive.
With relative risk free TD rates of 6% and house price appreciation gone, attracting new wannabe Landlords, will require yields of 8-9% to reflect the risk and fast inflating costs of such ventures. Right now, nous says this is still more of a misadventure than anything else...
On the bright side, with other factors at play, continued house price depreciation will correct this imbalance over time. As much as TA and his followers have repeatedly spruiked, this latest change to interest deductibility is no game changer.
All about supply. During Covid my CBD apartment was hard to tenant - there just were not an endless supply of foreigners coming to NZ. Interest rates were really low but my rental income was unpredictable - for a couple of years my rent was over 20% lower than 2019; in fact it still has not fully recovered. Interest rates make a difference when buying but to an owner the supply of tenants is the only factor.
Would be interesting to see how much tax is received as a percentage of overall revenue from the landlording industry with full interest deductibility. As interest rates have risen, these costs are passed on to the tenant (according to the industry).
If a landlord increases rent by $50 p/w and is still negatively geared, there goes $50 p/w no longer carrying GST. All because landlords were far to frivolous in taking out huge loans their tenants can barely afford to pay, the taxpayer misses out as a result.
Read my comment again. That $50 per week increase in rent, is no longer being spent by the tenant at a restaurant/supermarket/movie cinema/whatever, it's now diverted to the rent which if their landlord is negatively geared, the taxpayer now misses out on the GST.
i.e. Interest rate increase results in $50 increase to landlords cost -> landlord puts up rent by $50 per week -> productive enterprise that actually pays tax/GST loses $50 per week in business opportunity.
Thanks for clarifying your comment, that's now more understandable.
& this ?
"All because landlords were far to frivolous in taking out huge loans their tenants can barely afford to pay, the taxpayer misses out as a result."
Rents are primarily determined by tenants ability / willingness to pay, not landlords costs for the provision of housing.
Yeah the second part of your comment is a point of contention, and the industry flip flops depending on the narrative they're peddling.
I guess it really depends, blanket cost increases (healthy homes legislation, mortgage interest rates etc.) could send a universal pricing signal to the market. Rents rise in unison leaving tenants with little choice but to forgo other expenses, which then goes back to my original point.
first part of this article might need rewriting.
https://www.stuff.co.nz/money/350207484/property-investors-regain-abili…
Of course , nobody buys a house just to rent it out . thier main aim is capital gain . So the interest costs are not a rental expense , its an investment expense.
Out and about a fair bit today, saw a lot of flags for open homes, not a lot of people. Roads and car parks bare. Popped into one while walking earlier this afternoon. Nobody else there. Tidy 3br for “reasonable” price in todays market. I wonder at what price the interest would return.
Looking forward to some relief for renters when the interest deduction returns. /sarc
“The Government’s restoration of deductibility of interest will ease pressure on rents . . . “
Yeah, right, just like falling interest rates have done in the past. You renters don’t hold your breath.
Still lots of upwards pressure until yields improve considerably.
Yes, there's far too much entrenched entitlement mentality for that popular talking point to make it through to reality. Value takers be value-taking.
This free ride for speculators shouldn't be happening anyway. They're constantly subsidised and bailed out with working Kiwi taxpayers' money and need to contribute their share too.
How many other small businesses can engineer a cashflow loss year on year while still staying afloat, deferring their profit into the future where they pay no tax because it's called "capital gains"?
Siphoning money from everyday wage earners that could be spent on goods and services, but instead go to repay the landlord's sizeable mortgages and the taxpayer sees nothing from the transaction because no profit is shown therefore no tax is due. All on a property that likely already existed to begin with so nothing was even built.
The answer to your question is most.
To pretend this tax law had anything to do with fair tax payment ignores the fact corporate landlords are exempt.
Wait a couple of weeks and youll be able to buy your landlords rental, that will help your frustrations.... assuming you can beat that same corperate landlord at auction.
This was a National policy before the election. Other reporting is saying that the Nats now owe Act something cause they can't deliver on coalition agreement. Just smells to me like smoke and mirrors with Nats passing off unpopular policy as being necessary because of the coalition.
My personal situation was heavily dependent on that retroactive implementation.
We are not some tyranical authoritarian slum lord, we bought my wifes fathers house when he moved to a residential care home. The intent was a defered decision about leaving Auckland. We rented it out when we realised we couldnt check out of Auckland yet.
Changes in taxation turned what was a minor opportunity in to a huge burden we cant get away from without a hit we will pay for for the next 30 years.
We are lucky we spent 100k or so below what the apparent valuation was of the day. I can only imagine where others are at.
We didnt expect to cut a profit from the rent. We didnt expect any capital gains. We also didnt expect the govt of the day to keep twisting that rusty shank, and frame us up to be the cause of all economic hardships in NZ.
"Not worth the effort" to govt is thousands we dont have. Interest, rates, and tax we are out of pocket $20k pa for the pleasure, and no prima nocta.
I am reminded of playing bullrush in school - seeing a gap to make a run, getting ankle tapped, and meeting someones knee on the way to the ground.
We will probably be ok, but within weeks there will be blood in the water over this.
Mate the mother of all budgets is going to smash you in the face, plan or not...
- Ferries
- Rail Everywhere 3bil
- Raised crossings for AKL
- Water for WGTN
- Health and GPs
- New planes for air force
- Money for defense
- Napier recovery - floods
I can see GST going to 17.5%, no way they can afford a $20 tax cut , GP fees going up by $30 easy here
National is going to have to spend to fix, there is no way firing 10,000 civil servants is going to pay for this
If GST goes to 17.5, after the crocodile tears you can bet no future govt will campaign on reducing it.
However I also think that this tax increase is only a matter of time (& never an election promise, it would be done in Y1 because "previous Govt reasons"). There's nothing else with enough $, unavoidable & politically swallowable.
Edit: it may also be one of the few & obvious ways to reset over a decade of bracket creep
Scrubbing debt by any means necessary was the play best taken then, and now.
A number of "reckons", advisors, and conversations lead us to where we are. Some of the decisions were taken against my better judgement and in line with words from my betters. That wont be happening again.
My walls are R6 and my ceiling is R9 which makes my heating and cooling bill tiny/non-existent. Building better is good for people and given they are limited by the amount they can pay then the substance of the house will have to make up a bigger % of the total cost (i.e. land prices fall). May take a while to filter through but will lead to better outcomes overall.
Foam board? Did you mean SIP panels? Or 'cut on site foam panels'.
Re ventilation. Agreed. It can make a massive difference. But because it needs specialist design and done wrong can be a massive waste of money and energy, my expectation is it will be "recommended" rather than "mandatory" in the next round. And probably for 10+ years. In the colder regions, many developers see good value adding in heat recovery systems into new builds and upmarket renos. If I was operating down south I'd definitely be adding them.
"Last time i spoke to my brother (builder) about it there were regulation changes coming to require 150mm framing for walls in order to allow cavity space for the high R rating batts required..."
You are misinformed.
There's no problem getting the required R values using the existing (standard) 90mm framing.
If you want better R values - NZ's aren't high compared to cooler countries - then it gets more expensive, or you go to wall of greater depth. But 150mm? Only if you want exceptional R values and are willing to pay for it. Or you can use 150mm and crap insulation and pay less. (Actually, when I said crap, that's not completely true as there are some good 'traditional' methods but greater than 150mm is usually required.)
And 150mm walls needed to be traded off against other areas (windows, roof, etc.) where heat is lost / heat is gained. I.e. better value to add more insulation to ceiling spaces rather than wall. And HRV can play a role there too. (And don't get me started on windows! Huge number of options. And single glazing is never one of them.)
Metal windows, even thermally broken ones should be confined to the building bin of history. When mounted flush to the cladding as is standard in NZ, then there is practically no benefit to the thermal break and heat loss is high. Using windows made from insulating materials and mounting them in-line with the insulation with thermal breaks managed would give the biggest uplift to housing performance and health to NZers.
Could always sell the property? It's unfortunately the risk you take when you buy something with money you don't have.
Think of all the first home buyers that have seen their mortgage interest costs triple in the space of a couple of years, and can deduct zilch from their income associated with that mortgage.
I'm certainly not against mortgage interest deductions for landlords, but just how the tax advantages combined with equity leverage deposits and interest only mortgages created a huge distortion and uneven playing field against first home buyers.
If owner occupiers could deduct mortgage interest from their salaries, what an incentive it would give Governments to keep house prices in check. Imagine the hit to the tax receipts when mortgage rates rose from 2.5% to 7% on large loan balances and people were just using income tax to cover that expense.
We are in the boat of zero deductions.
Friends of ours in the FHB scenario had to front up $1000 per month on interest increases, and now a few months later with a baby entering child care and both returning to work need to front up another $1000 for kindy. These are very qualified, capable and intelligent people hamstrung at a crucial time of their lives.
This is what i mean when i say we arent so bad off as some.
Side note; one of the emerging risks for our country is low birth rate. In my mind one of the factors to consider for govt is incentivising having children.
Yes some change was inevitable.
The reality is dicking with interest rates and banking regulations is evidenced to be the leader for house prices and affordability, adding taxes with a limited scope to the pile feels malicious.
We bought in the middle of the CCFA implementation. It was clear to me in the process, the bank had far less handle on their math, and responsibilities than they should have. The conveyorbelt lead to lending approval. Throughout the process it felt to me like I was the only one genuinely interested in the due diligence side, understanding the relevant figures included.
As i said in the original - a deferred decision about leaving Auckland. We bought the place and tarted it up for our own living standards, with a last minute decision to instead put it out to rent.
The speculation on our part was that overall we wouldnt see extreme changes in either direction within a 2-5 year timeline.
This is where my perception differred from other peoples advice, apparent experts included. We followed the advice of others and here we are. Some capitol losses (nothing like what an average off the street purchasor would have suffered), and large monthly outlays.
Selling now means retaining some of the burden with no asset. Holding longer means speculating that prices may return with an ongoing expense compounding our predicament.
We could never recoup our monthly expenses by putting it onto the tennants, nor would we want to put that on them. It would nearly double their weekly payments. Theyre lovely people doing their best. I like to think we are too.
A very long way! I think capital gains tax should have been paid by anyone who purchased a property that they were renting for less than the cost of mortgage interest. since no real business would lose on every transaction they make. Obviously everyone with a 2% rental yield was betting on capital gain or they wouldn’t be paying someone to live in their homes….
Compared with the (almost) risk free alternative of say a 5-6% TD ?
I haven't owned investment property for over a decade & LVRs are quite different nowadays so the benefits of gearing are reduced - in the past I have bought several cashflow neutral/+ve properties with no money down.
Then there's ring fencing, not sure if that's still an issue. Brightline test is not an issue for an investment, only for short term speculators.
The tenancy law has also changed dramatically & from my previous 20+ years experience i know that half of tenants will be "problematic" (to be polite).
Also, I'd say the the property market is not yet at its nadir & meaningful CGs should not be anticipated until 5-10 years (I never invested for CGs, just for a future income producing asset).
If I was considering a property investment nowadays I'd be seeking at least a 10% gross return. Which probably suggests prices at least a third less than current (ie back to 2018)
Productivity will also head in the same direction if not already sinking. This government cutting back on investments into space research, manufacturing, Callaghan, etc. to incentivise borrowed capital sunk into an unproductive asset class; that puts a writing on the wall that productive capital and skills aren't welcome here!
They said they would do it and got voted in.
But it's bad bad policy. Interest cost deductions and tax free capital gains favoured landlording hugely over home owning. Leading to.
1. House price explosion
2. Decrease in rate of home ownership.
3. Vast sums sucked out of the populous for housing. Who now have no disposable
4. New Zealand's worst social disaster. Pervasive.
Christ the headlines about this are hysterical.
If rental owners can't deduct their interest costs there will ultimately be no rentals. That's not a utopia, that means people can't move here for work, students can't go flatting, kiwis can't move anywhere else for a while for work, people can't live together and raise a family before they buy a house...
Find some other tax/supply/demand lever to pull. This one made no sense.
Not sure thats answering the question. Yes at current interest rates investment logic suggests prices should reduce further (even with interest deductibility as my comment above) however without it there is no investment logic for property compared with alternatives. Labour partially recognized this by allowing deductions on new builds (for only 20 years, irrespective of ownership changes), This is inadequate incentive to maintain rental supply (IIRC ~70% of rentals are private).
If rental owners can't deduct their interest costs there will ultimately be no rentals.
Disagree - plenty of rental owners don't have any debt (no interest expense either) and they seem to manage fine. May not be the most 'tax efficient' gearing but let's not get hysterical and suggest there won't be any rentals.
Labour removed interest deductibility because jacinda had promised no capital gains tax at the election. Unfortunately the alternative they came up with was exponentially worse and nonsensical. That's what happens when your minister of finance has an arts degree and the most real world experience the PM has is working in a fish and chip shop
"That's what happens when your minister of finance has an arts degree and the most real world experience the PM has is working in a fish and chip shop"
No. That's what happens when there is a very vocal and powerful vested interest in protecting investment property owners.
It's the same reason we now have a transport Minister who has scuttled any further progress in transport by cutting all funding for anything other than gold-plated unaffordable mega motorways.
We get what we vote for.
This coalition with it's shit housing, transport, health, education and water infrastructure policies won. Now we live with it.
show me! I found this treasury paper on the topic. Looks like it's written by an intern copying and pasting from the internet, but the UK and NZ look like outliers to me.
USA.
They've chopped and changed over the last decades (Republicans reduce, Democrats increase) but OOs have been allowed claim a portion of their mortgage interest off their personal tax bills. This is an acknowledgement that the 'investor' gets an unfair tax advantage over the OO without it. This has been done at the Federal level but some states did this too.
IMO the NACTF should look carefully at this unequal treatment and never reinstate 100% of interest deductibility.
Actually, no.
The calculation for the economic benefit to owners occupiers is based on the rent they would otherwise be paying.
You might argue this stacks both investors and OOs against renters that want to buy. (Not all renters want to buy.) But that is an entirely different issue about the entry cost to get onto the housing ladder. On that issue you do have a point. But there are many other factors (other than tax) involved in this issue.
People claiming that the UK did away with interest deductibility are wrong, they did not. For starters, any residential property held in a company name is still able to fully tax deduct interest. It was only properties in personal names that were affected - so everyone simply transferred them to a company entity. Secondly, the UK introduced a finance cost tax credit that can be claimed against tax owed, compensating for the loss of deductibility - this is just rearranging the way interest costs are dealt with by the tax system, rather than removing the ability to claim them.
NZ is the only outlier.
Yes I'm talking about the employer superannuation contribution Tax (ESCT)! . This tax should not exist. Employer contributions are not taxed in other countries. Generally, one pays tax when super is paid out. It's not fair to also tax it on the way in. This particular tax erodes the essential compounding effect that's characterises superannuation schemes.
Errrrrrrr no it's been taxed since 1st April 2012.
2012 legislation codifies the deduction of employer superannuation contribution tax from contributions made for past employees at the ESCT rate of 33%.
https://www.taxtechnical.ird.govt.nz/new-legislation/act-articles/taxat…
Compulsory employer contributions to KiwiSaver schemes and complying superannuation funds were previously exempted from ESCT.
This exemption is removed from 1 April 2012. ESCT will therefore need to be deducted on compulsory employer contributions to KiwiSaver and complying superannuation funds.
https://www.taxtechnical.ird.govt.nz/new-legislation/act-articles/taxat….
The basic accounting principal is that you can claim expenses involved in obtaining profit, so for a landlord earning rent from a property interest is a relevant expense. For a homeowner earning nothing from the property, there is no revenue to offset the expense against. That said, I think the US has tax breaks for homeowner mortgages as well so these things are clearly flexible.
One could argue living in a house is an expense involved in obtaining a profit. Very hard to turn up to work while living under a bridge.
The bonus with owner occupier interest deductions is it incentivizes Governments to ensure house prices and debt levels are kept tame. Would be a HUGE hit to the tax receipts if home owners were offsetting their income tax against rising mortgage rates on huge loan balances.
Imagine it, low income wage earners getting WFF tax breaks, middle income offsetting PAYE against mortgages, working pensioners getting their tax back in the form of Super, wealthy hiding their affairs behind trusts and other creative accounting techniques.
I am not sure that is actually true. Even in the US, interest costs have capped deducibility. Arguably interest is a cost of capital not a cost of generating income. You could get 100% equity finance and get no tax deduction, why do you get a tax deduction for 100% debt finance?
That is not to say if your tax jurisdiction allows it, why we should treat a certain class of business differently.
Here we go, the first major broken promise.
Actually even before the election they were rolling this back. Initially they said they'd just remove it when they got in, then it was to be staged, then staged a bit more slowly, and now even more slowly.
I wouldn't be surprised if they haven't done it by the end of this term, and at the next election promise to do it in the next term.
I am not concerned as to whether or not landlords should have mortgage interest rate deductibility, but whether or not it should be a priority for the government.
We have been told loudly and often that the economy is in a terrible mess and that the cost of this will be some $3bn over the next 4 years. Does that make sense? Would it not have been more prudent to have said that it would happen once the financial position improved?
"Would it not have been more prudent to have said that it would happen once the financial position improved?"
But if they had said this they wouldn't have been able to sucker in all the landlord votes who thought Luxon was going to save the housing market.
Cynical? Yes.Dishonest? Yes. To be expected of the worse National leader in living memory? Yes.
I don't think he is that bad, I feel if this coalition govt hit their stride they will govern for 12 years minimum. Left is getting very radical and its not my place to say if that it is right or wrong, personally I feel current govt keeps the needle more central. I tell you what..... I do feel for Nicola Willis.
My family trust would have needed to pay an extra $10,000 tax on its $30480 annual interest. This trust has been operating for 10 years and is very conservatively mortgaged up. All surplus has gone into maintenance and improvements like healthy homes stuff, carpets, and some double glazing. Once this year's increase in rates, and insurance is added in the rent increase needed to stand still was $50 per week per rental unit over two years. The market will not stand a $50 pw increase so we have spread the catchup over two years. Ring fencing still stays so any top up from outside wages is non tax recoverable.
My tenants drive newer cars than me.
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