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NZ Brightline rules and interest deductibility

Written by Vanessa Williams on March 24th, 2021.      0 comments

NZ housing affordability

In an effort to control rising house prices, the NZ government has implemented tax changes in regard to residential investment properties.

Whether this will achieve the government desired effect of taking the heat out of housing prices remains to be seen.

Brightline Rules and Interest Deductibility

New Build Residential Investment Properties 

  • For new build residential investment properties purchased on or after 27 March 2021, there will be a 5 year period for which any gain will be taxable on sale under the Brightline Rules.
  • The government is considering an exemption for new builds to enable them to continue to claim interest. 

All Other Residential Investment Properties (Other than New Builds)

  • For residential investment properties purchased on or after 27 March 2021, there will be a 10 year period for which any gain will be taxable on sale under the Brightline Rules. Previously this was set at 5 years.
  • For residential investment properties purchased on or after 27 March 2021, from 1 October 2021 the interest deductibility will be removed. Therefore you can only claim interest up to 1 October 2021.
  • For Investment properties purchased before 27 March 2021, 100% of the interest can be claimed up to 1 October 2021. After this date interest deductibility will be reduced over a 4 year period. Please see the table below.
0321 NZ Brightline table
 
  • If money is borrowed on or after 27 March 2021 to maintain or improve a residential investment property and it was purchased before 27 March 2021, the interest deductibility will be removed. So, you can only claim interest up to 1 October 2021.
  • The government is considering whether those taxed on the sale of a property i.e. under the Brightline rules will be able to deduct the interest expense at the time of sale. 
Please note the changes above do not affect the ring-fencing of rental losses. Rental losses continue to be ring-fenced and can only be used to offset income from other residential property.

Please contact the Alliotts team in Auckland on 09 520 9200 to discuss the impact of these tax changes.

 

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