MOVING FORWARD

Last Tuesday the Government announced changes impacting on the housing market intended to help first home buyers whilst cracking down on property investors. The main key points are:

1. Extension of the bright-line test from 5 years to 10 years, however it will be kept at 5 years for new build investment properties. The family home will be exempt from this rule;
2. Removing interest deductions for residential rentals;
3. Loosening the income and price caps for the first home buyers accessing government assistance;
4. The Government will assist Kainga Ora to borrow an additional $2 billion to boost strategic land purchases;
5. Investing of $3.8 billion into a Housing Acceleration Fund to help build tens of thousand of houses;

Bright-line Test

The announced changes increase the bright line test from 5 years to 10 years for residential property purchased on or after 27 March 2021. Properties which had an offer in place on or before 23 March 2021, and cannot be withdrawn before 27 March 2021, will be treated as subject to the 5 year bright line test rule. New builds are to be kept at 5 years although the term ‘new-build’ is yet to be defined. The main or ‘family’ home rule is exempt from the bright line test if it is used for more than 50% of the time as the main residence. Click here for the IRD fact sheet to see if the new rules apply to you: https://taxpolicy.ird.govt.nz/publications/2021/2021-other-fact-sheet-bright-line-test

Removal of interest deductibility

From 1 October 2021 the Government plans to remove the ability for landlords to claim an interest deduction on residential property loans. These rules will apply to residential property acquired on or after 27 March 2021, and at a reducing interest deduction where the property was purchased before 27 March 2021 over the next four years (a progressive 25% reduction each year). Under the current proposal it will not be possible to claim any interest deductions on any residential properties purchased from the 2025/26 and later income years.

However, consideration is being given to exclude “New Builds” from the interest limitation rule, and whether people who are taxed on the sale of a residential property (for example under the bright-line test) should be able to deduct their interest expense at the time of the sale. These details are yet to be finalised.

Deductions will remain permitted for items such as rates, insurance, repairs and maintenance and limited depreciation claims.

Assisting first home buyers

The Government have also announced a change, from 1 April 2021, further measures to assist first home buyers with getting in to their first home. Firstly, the annual income cap for first home buyers accessing government assistance is planned to increase from $85,000 (for singles) to $95,000, and from $130,000 (for multiple buyers) to $150,000. The house price cap will also increase, depending on the location of the property in New Zealand, and whether it is a new build or existing property. A $3.8 billion Housing Acceleration Fund is being set aside, mostly to fund infrastructure to facilitate further development. For further information check out

https://kaingaora.govt.nz/news/housing-acceleration-fund-to-increase-supply-of-homes/ or https://www.hud.govt.nz/residential-housing/changes-to-first-home-products/