Recent Tax Changes & Compliance Requirements
Bright-line Test | Changes Commencing 1 July 2024
New Rule on the Bright-Line Test | 1 July Onwards
- Commencing 1 July 2024, the Bright-line test is now reduced back to being 2 years.
- With the new rule, if you sell a residential rental property on or after 1 July 2024 the new
bright-line test property rule will apply. This includes new builds.
- If the property is sold prior to 1 July 2024, the previous Bright-line test applies.
Bright-line Test that is Appliable for Residential Rental Property Sales Prior to 1 July 2024
- Previously, there were considerable changes to the Bright-line test. And the specifics of what
applied depended on when you purchased or acquired your residential rental property, and then
when you sold it. The key details are stated below:
- For purchase of a residential rental property between 29 March 2018 and 26 March 2021: the
bright-line property rule applies if you sell the property within 5 years of buying it.
- For purchase of a residential rental property on or after 27 March 2021 and prior to 1 July
2024: the bright-line property rule applies if you sell the property within 10 years of buying
it. For qualifying ‘new builds’ the bright-line property rule applies if you sell the property
within 5 years.
At Property Accountants we can guide and advise you on how the Bright-line test applies to your
specific property purchases and sales.
RING-FENCING OF RENTAL LOSSES
From 1 April 2019, IRD introduced the ruling that landlords are no longer able to offset their
residential property deductions / rental loses against their other income, e.g. salary, wages,
business income. The terminology of ‘Ring Fencing of Rental Losses’ means that any incurred rental
loss can only be offset against income from that particular property, or if applicable, their
collective property portfolio.
The rental losses can however be carried forward to a future year period, and then applied against
the particular property or the property portfolio.
This new ruling covers all types of property ownership, e.g. whether the residential rental property
is individually owned, in partnership, held in a Trust, or in a Company ownership.
If through the course of the rental property ownership, you choose to sell your rental property that
has previous year’s ring-fencing losses relating to it, specific rules apply, regarding the release
of these rental losses.
At Property Accountants we can advise and guide you onto all aspects of this rule.
Deductions on Interest | Changes Commencing 1 April 2024
New Rule on Interest Deductibility
- Commencing 1 April 2024, the ability to claim interest as an expense for a residential rental
property is being phased back in. This change to all residential rental properties, regardless
of the initial date of purchase of the property.
- With the new rule, for the financial year 1 April 2024 – 31 March 2025, 80% of interest
payments will be fully deductible. This changes to 100% of interest payments being deductible
for the 2026 financial year and onwards.
Interest Deductibility Prior to 1 April 2024
- The level and amount of interest deductions on existing rental properties were being
progressively phased out, commencing 1 October 2021.
- Previously, for residential investment property acquired prior to 27 March 2021, the percentage
of interest that could be claimed was on a reducing scale, depending on the actual date of the
purchase of the property.
- Previously, the drop-down rate for interest deductibility declined from 100% permitted (up to
30 Sept 2021), to 50% (as at 31 March 2024).
Interest Deductibility for the Financial Year 1 April 2024 – 31 March 2025
- For the financial year just completed, the interest deductibility for residential rental
properties is as follows, and differs depending on the date actual purchase of your rental
property.
- If your rental property was purchased on the day or after 27 March 2021 – no interest can be
deducted as part of your rental expenses.
- If you purchased the property on or before 26 March 2021, 50% of the interest payments can be
deducted as part of your rental expenses.
- Note: For the financial year 1 April 2024 – 31 March 2025, you will benefit from the new rule,
of 80% interest deductions permitted.
Interest Deductibility For New Builds
- For new builds, there is no change to the interest deductibility rule, as all interest
deductions were, and continue to be, fully deductible. For new residential builds, interest
deductions are permitted in full.
At Property Accountants we can advise and guide you on all aspects of your rights for interest
deductibility.