Back to the future with property tax changes
Chartered Accountants Australia and New Zealand (CA ANZ) NZ Tax Leader John Cuthbertson FCA is warning real estate agents, residential property sellers and landlords to be aware of incoming changes to the bright-line test and interest deductibility limitations, to ensure they meet their tax obligations.
MEDIA RELEASE (NZ)
“There have been a lot of property tax changes over the last few years, but that’s no excuse to not follow the incoming rule changes,” said Mr Cuthbertson.
“The bright-line rule will go back to a two-year period, after several changes since 2015 that saw it go up to a 10-year period. This will be more manageable for all concerned, with the test again aimed to catch property speculators rather than act as a quasi-Capital Gains Tax.
“The reduction in the test period has allowed for a much-simplified test and easier to follow main home exclusion. Additionally, the new rule focuses on the disposal date of residential property as the trigger rather than acquisition date, meaning that from 1 July sellers will only have to consider a single bright-line test, regardless of acquisition date.
“A property will be subject to the new bright-line test if disposed from 1 July 2024 and the bright-line end date is within 2 years of the bright-line start date. Care needs to be taken as the dates are determined differently. The bright-line end date is determined by when the seller first enters a contract for sale, whereas the start, or acquisition date is typically determined when title transfers.
“Sellers who want to take advantage of the pending new 2-year rule will need to be diligent to ensure that they do not inadvertently trigger the existing bright-line rules where sale negotiations are in play prior to 1 July.
“There has been a lot of discussion about the government reinstating interest deductibility, but less so the detail of how it works.
“The main thing is that the changes apply from a fixed date rather than in relation to an income year. From 1 April 2024 80% of interest costs can be claimed, increasing to 100% on 1 April 2025. The phase in of interest deductions applies for all residential investment property loans.
“Of course, new builds will continue to get 100% deduction of interest, but that legislation will be repealed from 2025, when there will be a level playing field for all properties.
“Landlords need to make sure they’re claiming interest for the correct period, and the correct amount.”
