Otago Property Investors Association Inc

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Inland Revenue Annual changes - Interest limitation and bright-line extension

Apr 12, 2022 - 7:30pm

  Zoom online only on request from the speaker

Zoom Registration: https://zoom.us/meeting/register/tJUocOyhqDIsH9MbH_YE4AhuDC--67waqor7 

Come and hear from the IRD themselves about the changes that happened on 1/4/22 and what it means for investors. Summary of changes being talked about below
From 1 April 2022, there will be changes to the bright-line property rule and the introduction of new interest limitation rules.
These changes have been proposed by the Government and are expected to be passed by 31 March 2022.
3 main changes:
Extending the bright-line test to 10 years – the changes have been enacted and apply to land acquired from 27 March 2021
Further changes to the bright-line rule including a 5-year bright-line period for new builds, the main home exclusion and some rollover relief (expected to be enacted in March 2022)
Limiting interest deductions (once enacted the rules apply from 1 October 2021)
The ability to claim interest on loans for residential property as an expense is being phased out.
These new interest limitation rules are expected to be passed into law by 31 March 2022 and will be backdated to apply from 1 October 2021, as outlined by the Government in March 2021.
For residential property acquired on or after 27 March 2021, interest will be denied as an expense from 1 October 2021, unless an exclusion or exemption applies.
For property acquired before 27 March 2021, the ability to deduct interest on existing loans is being phased out over 4 years, ending 31 March 2025.
Interest on any new loans drawn down on or after 27 March 2021 will not be deductible.
Special rules will also apply for refinanced loans and for interest on revolving credit and overdraft facilities. Any interest on borrowings above the closing balance on 26 March 2021 will not be deductible.
If you sell or dispose of a residential property and the sale is taxable under the bright-line property rule, you may add the amount of the interest previously denied to the cost of the property to reduce the taxable gain. If this results in a loss, the loss must be ring-fenced and can’t be used to offset income from other sources like salaries and wages.
From 2022, the income tax return will include new fields to capture information about residential property interest expenses, including total interest and interest expense claims.

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