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Matthew Gilligan

Coalition Government Tax Changes

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Today, New Zealand’s coalition government with National, Act and NZ First was finally announced. Some important decisions around tax and property investment have already been confirmed. 

Note that at time of writing we are still waiting on the detail around much of this, and we will further provide updates as they are announced. 


Reversal of interest non-deduction rules
The thing that we at GRA are most pleased about, is that the coalition parties have agreed to speed up the reversal of the interest non-deductibility rules for property investors. 

GRA and the Property Investors Federation (PIF) both lobbied National and Act to get these rules repealed, and we are happy and relieved that Act has negotiated to push through the changes more quickly than National was originally planning. 

Interest deductibility will be restored to property investors over the next couple of years as outlined below:

•  2023/24 tax year: 60% of interest cost will be deductible

•  2024/25 tax year: 80% of interest cost will be deductible

•  2025/26 tax year: 100% of interest cost will be deductible

It is yet be revealed how these changes will exactly be implemented, or even if this timing is correct as announced. We say this because the Hon Nicola Willis is already on record in the media at the end of November talking about different timing, which we interpret as a misunderstanding of what has been announced. 

What I can say with certainty is that the reversal of the non-deduction rules will help to undo what was a manifestly wrong tax policy that caused rent increases, threw tenants out of their homes when landlords sold their properties, skewed investment away from second-hand houses, and reduced the supply of rental properties. 

Act’s response to the combined lobby efforts of the PIF and GRA, and their follow-through on our request to negotiate for us during coalition discussions, have shown that Act stands behind landlords and have done what they said they would. Respect from GRA. 

90-day no-cause termination notices reinstated
We are also pleased the new government will reinstate 90-day no-cause tenancy termination notices. Labour’s removal of no-cause tenancy terminations caused unnecessarily adversarial disputes in the Tenancy Tribunal, and resulted in landlords avoiding what they considered to be risky tenants because eviction for anti-social behaviour was so difficult. This in turn put immense pressure on social and emergency housing. 

Now landlords will be more inclined to give a marginal tenant a chance because they know that if the tenant misbehaves (e.g. annoys the neighbours, damages the property, threatens the landlord), they won’t be stuck with them. 

Reduction of bright-line period 
Before the election, National signalled they would reduce the bright-line period from 10 years to two years. So we know what’s coming, but as yet, we don’t know when it will be implemented, and whether it will be reduced to two years or some other timeframe. Whatever it is, a reduction from Labour’s imposed 10 years is good news. 

Still to come is the detail. Will the rule change be retrospective on houses already owned, or prospective on new assets only? When will it take effect? The devil is always in the detail. 

Foreign buyer tax
It was reported that the planned foreign buyer tax on residential property “will no longer go ahead”.

What has actually been agreed is that there will be no changes to the current foreign buyer rules, which stipulate that only Australians and Singaporeans can purchase residential property in New Zealand. In other words, there will be no foreign buyer tax because there will be no loosening of the foreign buyer restrictions, and hence, no foreign buyers to tax. 

Summary
The policy changes around interest non-deduction, bright-line, and tenancy rules are an excellent start by the new coalition government, in my view. However, while it is exciting news, we need to wait to see what the detailed policy looks like. There are many unanswered questions. We will keep you posted on the GRA website (www.gra.co.nz) as further property and tax updates are announced. 

Matthew Gilligan
signed
Matthew Gilligan
Director
© 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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Colin Thomson commented on

"I agree with the comments made by made by Matthew"

Keith Clarke commented on

"Does the deductibility reversal for properties bought after 27th March 2021 come in on the same tax years at the same rates? Its not specifically mentioned anywhere."

Amanda Craddock

Good question - this will become clear as they produce legislation.

Jeremy Wynne-Jones commented on

"Good. But it’s still terrible how Singaporean interests (ie off shore Chinese) can buy our property unhindered. Where I live some of the best houses are sold like this. Some remain unoccupied as they are used for land banking. We are complete suckers to let this happen."

Paul Magill commented on

"So a rental property purchased today is at 60% according to new rules, or is it 0 Percent."

Amanda Craddock

Another good question - all will become clear as the new government produces its legislation

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