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Tax shake-up targets property investors

March 26th, 2021

Chris Lynch, CA, Managing Director

A surprise move to change tax deductibility on rental properties has come as a shock to property investors. Owners of investment properties can no longer offset loan interest payments against rental income when calculating how much tax they have to pay. This will apply to all investment properties - for existing rentals it will be gradually introduced over four years.

This will have an impact on you if:

  • You own a rental property.
  • You own an Airbnb or family holiday house.
  • You are about to buy, or you’re planning to buy, a second property.

If you fall into any of these categories, the equations on your properties are now likely to have changed, so get in touch and we can run the numbers for you under the new tax rules.

Once you have the right information, you can decide whether to make changes to your investment strategy or the way you use your properties.

Bright line test extended

The tax change had been forecast for some time: the bright line test is now extended from 5 years to 10 years. This applies to residential property acquired on or after 27 March 2021.

The bright-line changes are in a Supplementary Order Paper (“SOP”) to the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill (the “Bill”). The Bill is expected to be law shortly. The interest deduction restrictions will be legislated later this year, with effect from 1 October 2021.

Now, if you buy a second property and sell it within 10 years, you will be taxed on any gains. The timeframe for new builds is 5 years. This does not apply to your family home, unless you occupy it less than 50% of the year.

This may also have an impact on your plans for investing in property, so talk to us about what the new tax rules will mean for your situation.

No interest deductions for residential rental property acquired on or after 27 March 2021 and for already acquired properties a phase out of interest deductions over four years.

If you are confused, get in touch and we can run the numbers for you under the new tax rules. 

Chris Lynch, CA

Managing Director

Email Chris

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