From 2024, New Zealand’s property investment sector is set to undergo significant changes, particularly in the areas of interest deductibility rules and the Bright-Line Test. If you have an existing investment property, or are thinking about purchasing one in the near future, be sure to take note of the following information and consider what these changes mean for you.
Restored Interest Deductibility for Property Investors
Interest deductibility refers to the ability of a property investor to reduce their taxable income by the amount of interest they pay on their property loan.
Gradual Restoration
The New Zealand government’s proposal to restore interest deductibility for property investors represents a major shift, aimed at bolstering the property investment sector.
Key Phases:
- 2025 Financial Year: Deductibility will increase to 80%.
- 2026 Financial Year onward: Full deductibility will be restored, with 100% of interest costs deductible.
Roll-Back of the Bright-Line Test
The Bright-Line Test is a tax rule in New Zealand concerning residential investment property sales. Essentially, it determines if the profit from selling a property is taxable. The test applies if the property is sold within a specific period after purchase, and was initially aimed at reducing property speculation. Family homes are excluded from the Bright-Line test.
Reverting to a Shorter Period
The rollback of the Bright-Line Test from 10 years back to 2 years will significantly alter the investment landscape and reduce the tax exposure for many investors.
Specifics of the Change:
- Properties acquired before July 2022 and sold after July 2024 are expected to be exempt from the Bright-Line Test.
What This Means to Investors
The 2024 alterations to New Zealand’s investment property regulations present a positive scenario for those looking to invest in property. The phased increase in interest deductibility will boost the cashflow of investment properties as borrowing costs decrease, and the rollback of the Bright-Line Test will reduce the tax exposure for many looking to sell an investment property after July 2024.
Speak with an Apex Financial Adviser
Have you owned your own home for a while and are thinking about taking the step into property investment? Speaking with an Apex Financial Adviser can provide you with tailored advice and insights on how to grow your wealth through property in this evolving landscape.
