Govt releases property investor interest deductibility rules

The proposed rules for limiting interest deductibility for residential property investments has been released. 

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It comes with a proposal that the investment property would be exempt and able to still deduct interest for 20 years, if its code compliance certificate was issued after March 26, 2020. 

That exemption would also apply to any new owners of the house within those 20 years. It won't impact the main family home.

The move was announced by the Government early 2021  to remove the ability for property investors to offset interest expenses against rental income.  

Revenue Minister David Parker said the limits on investors deducting their interest expenses would kick in from October 1. 

"As we made clear when we announced the policy in March, for existing residential investment property acquired on or after 27 March 2021 deductions for the cost of interest will no longer be allowed," he said. 

"We want to curb investors’ appetite for existing residential properties but also want to stimulate investment in new housing. That’s why we’re also proposing an exemption for property development and for new builds, allowing interest deductions in full."

Housing Minister Megan Woods said the exemption also applied to purpose built rentals. 

"Purpose-built rentals are large residential developments designed for ongoing rental, rather than sale," she said.

"This is an emerging area and one where we see real potential to meet gaps in our rental market. I am expecting further advice on purpose-built rentals in coming weeks and will report back to Cabinet on whether there should be an extension beyond the 20 year period for some or all of this sector."

National's Revenue spokesperson Andrew Bayly described the changes as "rushed out, poorly thought out policy". 

"This has also been released only three days before the tax comes into force, further showing how this Govt likes to rush through important and very technical policy.

"National will scrap this policy."

ACT's housing spokesperson Brooke van Velden said the new rules would impact tenants, making them "destined for increases".

"Labour's housing tax changes are divisive and unfair. They’re about blaming investors and they’ll do nothing to improve housing affordability."

Finance Minister Grant Robertson said it aimed to "further level the playing field for existing homes in favour of first home buyers", with the interest changes intending to stem investor demand for existing residential properties. 

"Tax is neither the cause nor the solution to the housing problem, but it does have an influence, and this is part of the Government’s overall response," he said.