However, the much-hated loss ring fencing rules targeted at residential landlords remain in place. If restored interest deductions push you from profit to loss, these losses can only be offset against residential rental income, not other personal income.
The bill provides clarity on some key questions, outlining the following details:
Interest Deductibility:
- 2024: 50% deductibility (not the 60% promised).
- 2025: 80% deductibility.
- 2026: 100% deductibility.
Deductions will be available for all residential property, regardless of acquisition date after 27 March 2021. So, if you purchased a non-new build property after this date, you will gain 80% deductibility for the 2025 year. Accountants have been waiting for clarity on that point and thankfully, it is there.
If you find yourself with a tax liability for a sale within a brightline period, you will also be allowed to claim the interest you have so far been denied a deduction for against the brightline gain.
Brightline:
- Brightline will return to 2 years for sales from 1 July 2024 onwards.
- Simplification of the main home exemption rules.
- Rollover relief provisions extended to all transfers of land between associated persons, recognizing normal estate planning measures.
Depreciation on Commercial Buildings:
- Removal of the 2% depreciation deduction on commercial buildings, effective from the 2025 income year.
- Ability to depreciate separately identified fit-out and chattel items remains.
On that point, remember the purchase price apportionment rules apply to commercial acquisitions. These rules bind both vendor and purchaser to the same split between land, buildings and fit out. So, the fit-out value of an acquisition needs to be determined and negotiated with the vendor. You can no longer simply commission a fit-out valuation after settlement.
So, there you have it, these are the tax measures designed to restore a functioning private landlord sector in New Zealand.
