The Government’s latest announcement regarding changes to legislation in response to soaring house prices will affect existing and future property investors as well as the first-home buyer.
Here is what you need to know:
1. Bright-line test extended to 10 years which means that people who buy and sell investment property within 10 years will need to pay income tax on any gains made from the sale.
The Bright-line test looks at whether the property was either:
The family home and any inherited property will continue to be exempt from the bright-line test, and the bright-line test for new build investment properties will remain at 5 years.
2. Interest deductibility on investment property removed, therefore property investors will no longer be able to deduct the interest on the loans used to purchase the property from their rental income as an expense.
The legislation will apply from 1 October 2021.
Interest deductions on residential properties purchased on or after 27 March 2021 will not be allowed from 1 October 2021.
Note that interest on loans for properties purchased before 27 March 2021 will remain deductible but the amount you will be able to claim will be reduced over the next 4 years. At the end of the 4-year period, none of the interest on the loan will be deductible for income tax purposes. There would, however, be an exemption for newly built homes.
3. $3.8 billion Housing Acceleration Fund set aside to aid the funding of infrastructure around housing developments.
4. Price and income caps raised for the Government’s First Home Grants and First Home Loan which means that more first-home buyers will be eligible for the existing First Home Grant and First Home Loan.
5. The Government will also help Kainga Ora to borrow an additional $2 billion to aid in strategic land purchases to enable the building of more affordable state housing.
If you would like to discuss your situation and how the above changes will impact you, please feel free to contact us or you can find out more information here.Contact Us