Chartered Accountants Australia and New Zealand (CA ANZ) took members of the Finance and Expenditure Committee on a deep dive into the complexities of the Taxation ‘Remedial Matters’ Bill on Monday, which served to back up the peak accounting body’s over-arching recommendation - keep it simple.
By unpacking a range of potential property issues in the Bill, CAANZ highlighted the need for simplification of the new rules, and why a recent survey of accountants in public practice found almost 50 per cent were either somewhat confident, or not at all confident on advising on the new build bright-line test.
CA ANZ NZ Tax Leader John Cuthbertson offered a simple solution for several issues relating to the bright-line test; let homeowners select their main home which would be excluded from the test.
“CA ANZ advocates from a public policy perspective, meaning we want to see policy that benefits our wider society rather than any one group, accountants included.”
"There’s a range of situations where a main home may get inadvertently captured by the bright-line test if you live outside it for 12 months. For example going on a secondment, vacating due to flooding, fire or earthquake, undertaking a substantive renovation, transitioning to end of life care, or even where it takes longer than 12 months to build a main home.”
“We think a solution could be to have homeowners elect their main home, rather than having it determined through a complex set of inflexible rules.”
The issue of transfers of property between ‘the bank of mum and dad’ and children was also raised, as currently such transfers would trigger the bright-line, despite the intention to pass the property on ‘at cost.’
“Parents have long helped their children onto the property ladder by purchasing a property, often against their own equity, and then selling it to their child later on at the cost they bought it for.”
“The main home exemption is not available in this situation and any increase in value would be caught under the bright-line, which would be disastrous for parent’s simply trying to help their children into a first home.”
CA ANZ also called out the potential for confusion, given that bright-line and proposed interest limitation rules, while related, are operating quite separately.
“Changes to interest deductibility and the bright line test are often mentioned in the same breath, but in terms of who and what is caught and when the changes are happening, there are some very important differences.”
“The bright-line test captures all residential land, purchased both in New Zealand and off-shore, while the interest limitation rules only apply to borrowings for residential land in New Zealand.”
“Residential property acquired on or after 27 March 2021 attracts a 10-year bright line period, reduced to 5 years if a new build. However, the bright line period does not start until the property transfer has been registered with the land transfer office.”
“The interest limitation rules are more involved. Where residential property is acquired on or after 27 March, interest deductions are denied from 1 October 2021. Interest deductions for existing properties are however phased out over four income years also starting from 1 October 2021.”
“Interest deductions for new builds have been signalled to broadly continue for a fixed period up to 20 years from the time the code of compliance certificate is issued.
“What may be considered a new build is intended to be concessionary and is not intuitive. For example moving an old house onto a new property, building a dwelling on top of another or converting a commercial building to residential all potentially qualify. People need to have their eyes wide open to understand the opportunities.”
“The New Zealand public needs simplicity in these new rules, otherwise there will be unintended outcomes and inadvertent non-compliance.”
“Alongside allowing homeowners to nominate their main home, we also recommend an education campaign and clear guidance to support the majority of taxpayers who will be trying to navigate these rules without expert help,” concluded Mr Cuthbertson.