Details of the New Policy
Under the coalition agreement with ACT, the government initially proposed backdating the tax deductions to allow for a 60% claim on residential rental income for 2023/2024 tax year. However, this plan was not implemented.
Starting from April 1, 2024, landlords will be able to deduct 80% of their interest expenses. And by April 1, 2025, when you can claim the full 100%.
There is no change for the period 1 April 2023 to 31 March 2024. So, you will still be able to claim 50% of the interest incurred if the property was purchased before 27 March 2021. If the property was purchased on or after 27 March 2021, no interest can be claimed.
Legislative Timeline
These changes are going to be part of a bigger tax bill, the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Bill, that’s currently in its Second reading.
Reduced Brightline Test
The Government also confirmed plans to shorten the test from 10 to 2 years from July 1, 2024. Under the current regulations, profits from selling an existing investment property within 10 years, or a new build within five years, are subject to taxation. But with this new change, only the sales of properties within two years of buying them will be taxable.
If you sell a property before 1 July 2024, the current bright-line periods (5 and 10 years) still apply.
These moves by the government is a positive step for landlords, easing some of the financial pressures faced in recent times. The transition to full interest deductibility will also make financial planning more manageable and predictable.
The information contained in this article is exclusively for promotional purposes. It does not in any way constitute legal advice and should not be relied upon as the basis for any legal action or contractual dealings. The information is not and does not attempt to be, a comprehensive account of the relevant law in New Zealand. If you require legal advice, you should seek independent legal counsel. myRent.co.nz does not accept any liability that may arise from the use of this information.
