Recent Legislation Updates – Residential Property Investment - Part 2

Proposed Interest Limitation

Owners of residential investment property can deduct the interest on loans that relate to the income of their property/ies i.e., mortgage. The new legislation will gradually phase out the ability to claim interest as an expense as shown below:

Date Interest Incurred Percentage of Interest you can Claim

1st April 2020 to 31st March 2021 100%

1st April 2021 to 31st March 2022 1st April 2021 to 30th September 2021 – 100%

(Transitional Year) 1st October to 31st March 2022 – 75%

1st April 2022 to 31st March 2023 75%

1st April 2023 to 31st March 2024 50%

1st April 2024 to 31st March 2025 25%

From 1st April 2025 onwards 0%

The government’s intention for this is to cover property that is commonly and foreseeably used to provide residential accommodation on a long-term basis.

Exclusions Include:

  • Houses on Farmland

  • Land outside of New Zealand

  • Business Premises

  • Care Facilities (Such as Hospital, Nursing Home)

  • Commercial Accommodation, such as hotels, motels and boarding houses

  • Retirement Villages & Rest Homes

  • Income Derived from Main Home (Such as Flatmate/ Boarder)

  • Employee Accommodation

  • Custom-built Student Accommodation

Entities Affected by Interest Limitation:

  • Close Company (including look through companies)

  • ‘Residential Investment Property-Rich' Company

  • Trust

  • Partnership & Limited Partnership

  • Individuals

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