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Tax Changes Property Owners Need to Know in 2024

Carmen Horn
As the new government takes office in New Zealand, there's a buzz of anticipation about how it will impact tax policies in 2024. With fresh leadership comes the potential for new directions in taxation, promising both challenges and opportunities for property owners. While specifics may still be unfolding, it's important for you (the taxpayer) to stay informed about any potential changes that might affect your financial obligations. We’ve shared some upcoming tax changes that property owners can expect in 2024.

Property owners, take a look!

Thinking about buying or selling residential property in 2024? Or maybe you currently have a long-term rental or run an Airbnb?

If you have investment property (i.e. a long-term rental or Airbnb), it’s useful to understand these 4 tax policies that have changed with the new government:

1. Interest Deductibility

2. The Bright Line Rule

3. App Tax (for Airbnb and Uber)

4. Building depreciation

What is interest deductibility?

Interest deductibility in New Zealand refers to the ability of individuals or businesses to subtract the interest they pay on loans from their taxable income. This deduction can reduce your yearly income, thus reducing the amount of tax owed to the government (that’s a win for you).

Here's a simple breakdown:

  • 1. Interest Payments: When you borrow money, such as a mortgage for buying a house or a loan for your business, you often have to pay interest on that borrowed money. This interest is a fee you pay to the lender for the privilege of borrowing their money.
  • 2. Tax Deduction: In New Zealand, if you're earning income from sources like a job or business, you're generally required to pay taxes on that income. However, the government allows you to deduct certain expenses from your income before calculating how much tax you owe. One of these deductible expenses is the interest you pay on loans.
  • 3. Reducing Taxable Income: Let's say you earned $50,000 from your job and paid $5,000 in interest on a loan during the year. If interest is tax-deductible, you can subtract the $5,000 in interest from your $50,000 income, effectively reducing your taxable income to $45,000.
  • 4. Lower Tax Bill: With a lower taxable income, you end up owing less tax to the government. This can result in savings for individuals and businesses, making it more affordable to borrow money for various purposes. Capeesh?

What are the changes to interest deductibility?

Since 2021 the phasing out of interest deductibility (besides on new builds) was introduced but now the new government is phasing it back in and backdating it to 1 April 2023. It will look like this:

Phase 1: 60% of interest costs in 2023/24 (compared to 50% currently for grandparented loans and 0% for new loans).

Phase 2: 80% in 2024/25.

Phase 3: 100% in 2025/26 (Starting from April 2025, you will be able to deduct all your mortgage interest costs).

*Note: we assume that during the phase-in period, ‘new builds’ will continue to have full (100%) interest deductibility but we will update you once we are certain!

Understanding the bright-line test

The bright-line test is a form of capital gains tax in NZ. Capital gains tax applies in most countries and is tax paid on the profit from selling an asset (i.e. a property). In New Zealand, when a property has been purchased with the ‘intention’ of resale you'll have to pay tax on any profit from the sale later on. The intention to sell does not need to be the main reason for buying the property - it could be one of several reasons for buying.

‘Intention’ is quite hard to prove, so to help define the buyer's intentions the bright-line test (which was 2 years) was introduced. This meant if you sold a property within two years of buying, it was assumed you had intended to resell the property and you had to pay tax on any capital gain. Only a few years after it was implemented, they extended the bright-line test from 2 to 5 years. Then, in 2021, they took it out to 10 years.

Before the 2023 election, the bright-line test was 10 years. So, if you sold a residential property within 10 years of owning it, you would have had to pay tax (besides new builds, main homes and other exemptions). The same rules apply as we write this, however, that’s about to change…

What are the changes to the bright-line test?

The mini-budget announcement on 20 December 2023 stated that  “The bright-line test for residential property will be returned to 2 years from 1 July 2024.” This means that properties purchased before July 2022 that are sold after July 2024, are not expected to be subject to the bright-line test. Therefore tax will not be payable on any profits made over that period.

Note: generally, the bright-line property rule does not apply to a sale of property that has been your main home. There are other exemptions to also take into consideration. Still confused? Give us a yell!

Airbnb rules are changing! What is Airbnb ‘App Tax’?

From April 1 2024, online marketplace operators (also known as digital platform operators) will need to collect GST on all listed services provided through their online marketplace. Platforms involved in ride-sharing, food delivery or short-term accommodation will need to charge GST even if the owner doesn’t make $60,000 annually (which is the GST threshold in NZ). Yes, that includes Airbnb

For those of you who are not registered for GST, Airbnb will be charging 15% GST and then giving you back 8.5%. This will mean that actually only 6.5% will go to the IRD (although this is still more than before as previously no GST was payable). If you have an Airbnb, you may want to factor into your margins the extra cost of GST and increase your pricing to suit.

For those who earn over $60,000 annually, and are registered for GST, normal GST rules apply.

Building Depreciation:

Starting from the 2024/25 income year, there will be a significant change in New Zealand's tax policy regarding commercial building depreciation deductions. Specifically, the ability to claim these deductions will be removed. This change will likely have implications for property investors and businesses that own commercial real estate. Without the ability to claim depreciation deductions, their taxable income could increase, potentially leading to higher tax liabilities.

Need help?

The above is only a guide and is based on the knowledge available from the government at this current point in time. We expect IRD will be updating their website to reflect the changes soon; when they do, we’ll update you. Chuck us your email here to stay informed and get valuable insights.

Carmen Horn

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