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Articles by Anthony Lipscombe

Anthony Lipscombe

Interest Limitation Law About to Pass (Finally)


Almost a year to the day since the Government announced rules to eliminate tax deductions on interest for property investors, the legislation has all but reached its final destination. In the last two weeks the Select Committee report on the first draft of the legislation has been released and amendments have been made to the first draft reflecting these recommendations. You can find our previous article on the first draft of the interest limitation legislation here.

What I want to do now is highlight some of the notable changes in this latest draft.

Rollover Relief

One of the areas that many clients may be interested in are the new “rollover relief” rules. To recap, the concept of “rollover relief” refers to a concession in tax legislation that allows property to be transferred from one party to another without triggering the application of the bright-line rule, and without seeing the new owner denied the ability to claim interest because they have bought a non-exempt rental property on or after 27 March 2021. Put another way, if rollover relief is applicable, the new owner steps into the shoes of the old owner as far as the bright-line and interest limitation rules are concerned.

In the initial draft, it was proposed that rollover relief would apply when property is transferred from an individual to a trust and an individual to and from an LTC. Many submissions, including from GRA, were made to the Select Committee about extending the types of transfers that qualify for rollover relief. Pleasingly, the legislators have listened, and rollover relief is going to be applicable in the following additional circumstances:

  1. Transfer of a property from a trust back to the settlor(s) who transferred the property into the trust in the first place. 
  2. Transfer between two trusts where the principal settlor who transferred the property into the trust is the principal settlor of both trusts and there are common beneficiaries. 
  3. From an LTC to a trust, where the owner(s) of the shares in the LTC is the principal settlor(s) of the trust and a beneficiary, and all other beneficiaries of the trust are “close family associates” of the principal settlor. The definition of close family associates is relatively wide, being relatives within 4 degrees of blood relationship. 
  4. From an individual to an LTC, where the shares in the LTC are held by the trust and the individual is the principal settlor of the trust and a beneficiary, and again all beneficiaries are close family associates. 

This means that there is more scope for transferring properties into trust ownership without triggering disadvantageous outcomes under the bright-line rule. If you have been holding off transferring a property that you own personally into a trust or properties that you own in an LTC into a trust, then it is almost time to push forward with that. Note that these new rollover relief provisions apply to transfers on or after 1 April 2022. Please contact your client service manager at GRA if you want further advice on whether rollover relief could be of use to you. (Or if you are not already a GRA client, we'd be pleased to meet with you to see how we can help - phone 09 522 7955, email [email protected] or via our online form.)

New Build Definition

There have been some further clarifications to the definition of “new build” property. Once again to recap, if a property is classified as a “new build”, then interest incurred in relation to that property is deductible for 20 years from issue of the code compliance certificate (CCC), and the property is subject to a five-year bright-line period if acquired within 12 months of the issue of CCC. 

The latest draft confirms that earthquake damaged property that is listed on the earthquake-prone buildings register and then remediated such that it is removed from the register on or after 27 March 2020 will be treated as a new build. Furthermore, leaky buildings where at least 75% of the dwelling is reclad and CCC is issued after 27 March 2020 will also qualify as a new build.

A couple of other technical clarifications worth noting include the fact that relocating an existing dwelling on the same piece of land which sees CCC issued on or after 27 March 2020 is also to be classified as a new build. On the face of it, one may question how this increases housing supply (which is the philosophical basis of the new build exemption) given that it does not see the creation of a new dwelling. The rationale is that in most instances where a dwelling is relocated it will free up land to be developed further, creating new dwellings. On a slightly more niche note, you can still get the benefit of the five-year bright-line period if you sell bare land if there was a new build on that land, but it was destroyed by fire or natural disaster. 

Boarding House Exemption

One of the big omissions from the types of properties that are exempt from the interest limitation rules were boarding houses. In the initial draft there were exemptions for hotels, motels, and hostels but no explicit reference to boarding houses. In the latest draft there is a new classification known as “boarding establishments”. Interest in relation to a boarding establishment is not negatively affected by the new rules (i.e. it is exempt from the interest limitations).

The definition of a boarding establishment is a dwelling where there is accommodation for at least 10 occupants in separate rooms that are not self-contained and there are shared living facilities available for all residents. This means that the bar for classification as a boarding establishment is somewhat higher than where it is set in terms of classification as a boarding house under the Residential Tenancies Act. 


At the time of writing the legislation has passed through Parliament and is awaiting Royal Assent, but by no means do we expect that to be the final word on this. The haste with which this legislation has been drafted and the inherent complexity means that there inevitably will be subsequent amendments. There is also going to need to be a fair degree of support and guidance issued by the IRD which we expect to follow in April. We further note that the National Party have signalled they will reverse this if elected, so stay tuned for more policy change from both sides of the House. 

Once again, please contact GRA if you are concerned as to how these rules may impact you, and in the meantime GRA will continue to monitor the evolution of this overly complex and poorly thought through piece of tax policy. Keep an eye on our Tax Changes Resources webpage for further developments. 

Anthony Lipscombe
Anthony Lipscombe
© Gilligan Rowe & Associates LP

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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.

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Hi Juliette, Just want to say thank you for all the work you have done and advice you've given. Definitely tricky during these Covid times and still getting the job done. Want to wish you and your team good fortune, and hopefully in the future work together to get another property.

- Arthur W, September 2021

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