The announcement of the new bright-line rule and the intention of removing interest deductibility will significantly impact property investors.
On 27 March 2021, the government announced an extension to the bright-line test for residential properties from the previous five to ten years. The new rule works to solve the significant demand and small supply of residential homes in New Zealand by mainly affecting property investors rather than everyday homeowners.
As an exception, if the property you are selling was your main home, the bright-line test does not apply to you. However, a change-of-use rule has also been introduced, which applies when a property hasn’t been used as the main home for over 12 months at a time.
Affinity Accounting knows how difficult it is to understand some of these new property law changes, and we suggest you talk to us before starting your journey of selling your residential property that has been tenanted previously.
An even more surprising proposed change has been the removal of interest deductibility. This rule will come into place from 1 October 2021 and require property sellers to pay a much larger tax:
The government has proposed to remove property owners’ availability to deduct interest on their mortgages from their rental incomes. New builds will be an exception, and more information is expected to come from the government after consultation.
Our advice at Affinity Accounting is not to panic and take impulsive decisions. We suggest you talk to us before you consider selling, purchasing or restructuring your mortgages, and we will make sure you understand these new rules fully.
Affinity Accounting offer their services in accounting, tax, advisory, and Xero in Wellington. Our team works to support you in your financial journey, and we strive to build a lasting relationship with our clients. Get in touch with us if you would like to find out more about the property law changes or need support in any other accounting related questions.
For more information, visit our website at https://affinityaccounting.co.nz/.