Recent Legislation Updates – Residential Property Investment - Part 3

Exemptions to Interest Limitation

Development Exemption:

The development exemption is intended to cover land being developed for the purpose of creating a new build or developing an existing property to rent itself. This applies to work that makes a building habitable or extends its life. This does not apply to renovations that are not substantial.

Examples of Developments that may Qualify Include:

  • Building a House

  • Converting a single house into Multiple Flats

  • Converting a Commercial or Industrial Property to a Residential Property

  • Relocating a house

To the extent that the activity is:

  • Subdivision

  • Development of Land, or

  • Constructing a Building

Qualifying interest deductible as an expense includes interest incurred in relation to the acquisition of the land and interest incurred on any additional debt acquired for the development activity. This is subject to timing which applies from when the land is acquired or from when development begins.

Once CCCs are issued for the new dwellings, the development exemption will switch to the new build exemption

New Build Exemption:

The Government has decided that “new build” residential properties should be exempted from the interest limitation rule and also subject to a five-year bright-line test (rather than a ten-year test)

The new build exemption includes:

Simple new builds

  • Adding a dwelling to bare land.

  • Replacing an existing dwelling with 1 or more dwellings.

Complex new builds

  • Attaching a new dwelling to an existing dwelling.

  • Splitting an existing dwelling into multiple dwellings.

Commercial to residential conversion

Excludes renovations that do not clearly increase housing supply

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