Investment property tax rules changing from 1 April
In a policy change that has been billed as good news for both property investors and renters, the government has agreed to restore deductibility for mortgage interest on residential investment properties.
This will be phased back in, with investors able to claim 80% of their interest expenses from 1 April 2024 and 100% from 1 April 2025 onwards.
Under the law introduced by the former Labour Government, there's no deductibility for property bought from 27 March 2021, although 50% deductibility does exist for property bought before that date. Soon, all investors will be able to claim higher levels of deductibility.
Associate Finance Minister David Seymour said the government's new policy would benefit investors and renters, by simplifying the tax code and putting downward pressure on rents.
“Landlords have been hit with a double whammy of rising mortgage interest rates and increasing interest deductibility limitations during a cost-of-living crisis. These costs are inevitably passed on to tenants, one of the reasons New Zealand has all time high rental costs. This heaped pressure on landlords and renters alike by reducing the number of rentals, pushing rents up and making it harder for Kiwis to save for their first home,” he said.
“Competition helps keep prices affordable. Reducing supply reduces the number of options and drives up prices. Removing the ability for landlords to claim interest expenses made residential properties less attractive and reduced the pool of properties for tenants to choose from. To overcome New Zealand’s many challenges there needs to be an environment where investment and development is encouraged. This change is a step in the right direction.”
The reaction from investors and Labour
New Zealand Property Investors Federation executive committee member Tim Horsbrugh welcomed the return of deductibility, which he said was not a tax cut but would ensure investors contributed their fair share of taxes on profits.
“The government's promise to reinstate interest deductibility brings property investors back in line with every other business in the country, where interest costs are a legitimate deductible expense,” he said.
“By helping to alleviate the financial strain on property owners, we create a more conducive environment for affordable housing and stability for tenants.”
However, Labour finance spokesperson Barbara Edmonds criticised the policy change.
“The assertion that this will bring the cost of rent down is a wolf in sheep’s clothing, there is nothing in [the] announcement that guarantees tenants will have savings passed on to them as a result,” she said.
“This tax advantage for the wealthy is not only set to be unfair for tenants, it shuts first home buyers out from getting a foot on the property ladder. Parents and grandparents who hope for their children to own their own home will realise it is a more difficult path to home ownership than ever before.”
Given the impending changes, property investment has become even more attractive. If you hear of clients who want to buy an investment property, please refer them to me so I can help them with the finance.