Investment Property Changes
With the recent announcement of proposed changes to property investments, SBA have compiled the following information to help you figure things out. We have included a breakdown on the changes to interest deductibility and the bright line test. More importantly we have created a simple property tax calculator to help you analyse the impact of these tax changes for you.
Changes to deductibility of interest on investment property.
Currently you may reduce your taxable income received as rent for a residential property by the amount of interest paid for financing the property. This deduction is going to be phased out and the rental income received will be taxed at the rate applicable to your income level less expenses other than interest, like repairs and maintenance or rates.
The new interest deductibility rules will take effect from 1 October 2021.
Interest on properties purchased after 27 March 2021 can only be claimed until 30 September 2021, after this no deduction of interest against rental income is allowed at all. This includes interest on loans taken for maintenance or improvement of your property.
The reductions will be implemented in phases over the next 4 years for existing loans established before 27 March 2021:
|Income year||Allowable Deduction|
|1 April 2020–31 March 2021||100%|
|1 April 2021–31 March 2022
|1 April 2021 to 30 September 2021 – 100%
1 October 2021 to 31 March 2022 – 75%
|1 April 2022–31 March 2023||75%|
|1 April 2023–31 March 2024||50%|
|1 April 2024–31 March 2025||25%|
|From 1 April 2025 onwards||0%|
NOTE: Property developers (who pay tax on the sale of property) will not be affected by this change. They will still be able to claim interest as an expense.
The Brightline Test
The Brightline test has been extended from five to ten years for properties purchased, or where ownership is transferred, after 27/3/21. Properties that were purchased/transferred prior to 27/3/21 are not impacted by this change, but may be captured by the current five year Brightline test.
This excludes the house you live in and is only for additional properties you own.
There is an exception allowing newly built homes to use a 5 year bright-line test from the date of construction.
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 measurement of personal use versus rental use in determining apportionment exemption for Brightline will also now change, utilising the actual percentages of private versus rental usage instead of a cut off of anything above 50% private use causing a prevention of utilising private portions at this level.
How to use the property tax calculator
The six columns represent the years that will be affected by the changes based on the assumption that the loan over the properties has been established prior to the 27th of March 2021. Any new mortgages over property purchased for investment from this date will have no interest deductible from 1 October 2021.
Enter the values as follows:
Rental Income Line: The expected amount received for the tax year indicated, this runs from the 1st of April to the 31st of March in each case. Please enter amounts with any expected increases for annual rent for each year. Remember that legally you may only increase rent once a year.
Less Interest Payable Line: The expected amount of interest payable annually to your financing institution in full, the calculator will automatically apply the legislative deductions for the relevant years. You may assume interest rates will remain the same or you may try scenarios where rates may vary by altering these here.
Other Allowable Expenses Line: enter any expenses still allowable in terms of your rental, this may include rates or repairs and maintenance not considered improvements. Enter this as a positive amount, the calculator will deduct it automatically.
All Other Income Line: enter all your income here expected for the years in question excluding the net rental income calculated to determine your tax for the year. This includes salaries, profits allocated to you from business and interest or dividends you may receive and any other taxable income.
This will give you the resultant tax and net income based on the changes for the respective years.
Unfortunately, our calculator is not available on mobile devices. Please visit our desktop site to view the property tax calculator.
What can SBA do for you?
- Advise on how the changes will affect your current investment properties
- Advise on scenarios moving forward that can help you make sound decisions on acquiring investment properties
- Advise on restructuring your investment balance to best benefit your desired outcome
Income caps for the Government’s scheme for first-home buyers only needing a 5 percent deposit will be lifted from April so more people can access it.
|$550,000||$550,000 (no change)||$500,000||$500,000 (no change)|
Western Bay of Plenty District
|Queenstown-Lakes District||$650,000||$650,000 (no change)||$600,000||$600,000 (no change)|
|Rest of New Zealand||$500,000||$500,000 (no change)||$400,000||$400,000 (no change)|
Upper Hutt City
Kāpiti Coast District
|Income Caps||Previous Caps||New Caps|