What are the current guidelines?
At present residential investment property owners can claim interest on loans related to the property as a claimed expense. Thereby reducing the amount of tax needed to be paid.
What are the pROposed changes?
While the government is still in consultation on the precise details of the proposed change, what we do know from 1st October 2021 the proposal is set to restrict and eventually, overtime, remove the interest deductions on residential property income.
What do you need to know?
From the 1st of October, residential investment properties purchased on and after 27th March 2021 will not be allowed to claim interest deductions.
However, if you have purchased residential investment properties before the 27th March 2021 they can still be claimed as an expense. Bear in mind though these claims will be reduced by 25% each income year for 4 years and phased out completely from 1st April 2025.
Money borrowed for maintenance and improvements from 27th March 2021 will not be able to be claimed as an expense from 1st October onwards.
An exemption may be made on new builds, and property developers who pay tax on the sale of a property.
For more information on this controversial proposed change head over to see the Fact Sheet on Proposed Changes
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As always, we are here to help if you have any questions or want to explore your options.
Cristina Canard is the principal accountant at Apex Accountancy Ltd. Cristina keeps up to date with all the relevant tax changes in New Zealand.