Whether you are a first time landlord or a seasoned professional, as a property investor, you can reduce the amount of tax you pay by purchasing a Brooksfield home and remain exempt from the upcoming changes to interest deductibility and increased bright line duration.
There was a collective groan from landlords around the country in March when the Government announced property investors’ ability to offset interest costs against rental income would be coming to an end. The plan to systematically phase out interest deductibility on existing residential investment properties will take place between 1 October 2021 and 31 March 2025, with a 25% reduction each income year on the amount of interest that can be claimed as an expense, resulting in a significant increase in tax bills for landlords with large mortgages.
In implementing these new measures the New Zealand Government aims to reduce investor pressure on prices by discouraging them from purchasing existing housing stock, theoretically making them more attainable for first home buyers and owner occupiers, for whom interest deductibility has never applied. Unfortunately many are predicting the adverse effect of rent increases as costs for landlords climb, creating further barriers to the market for those who do not currently own their own home.
The silver lining is the exemption of new builds from these upcoming tax changes. In an attempt to encourage the creation of new homes and reduce the housing shortage, the government has confirmed investors will still be able to claim back loan interest on new builds, causing them to quickly become the preferred option for first time landlords and those looking to increase their property portfolio alike. The ability to continue to deduct loan interest as an expense is no small bonus and can save even first time investors purchasing a modest property tens of thousands of dollars a year.
In addition, the bright line test on new builds is set to remain at 5 years rather than increasing to 10 years in line with existing homes, making a new build an appealing option for any buyer who could be looking to sell and make a profit. The ability to sell tax free in half the time is an undeniably attractive option. Even if you are an investor looking to buy and hold, the ability to be fluid as circumstances change or opportunities arise is always going to be beneficial. Given these benefits, it is no wonder the demand for new builds is predicted to skyrocket in the near future.
If purchasing a new build as a rental property was enticing before, with lower deposits, modern features and up to date compliance, these recent taxation changes are set to make them an even hotter commodity.
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