Residential investment property and interest deductibility

Property investors were shocked in March 2021 by changes announced for residential investment properties.

The changes to interest deductibility attracted the most controversy, even more than the extension of the brightline test and changes around the exemption for the main home.

Since then, the Government has released proposals for consultation, addressing some complex issues, including:

• the types of taxpayers affected by the rules
• what types of property will be excluded, and
• how a ‘new build’ is defined (new builds being exceptions to the proposed interest rules and the new 10-year bright-line test).

Most taxpayers who own residential property will be caught by the new rules: individuals, trusts, partnerships, limited partnerships, and certain companies.

The proposed rules apply to property used to provide long-term residential accommodation (eg properties subject to the Residential Tenancies Act 1986), as well as short-term accommodation (eg Airbnb properties). Under the proposals, some types of property are excluded while some questions still hang over others.

The proposals are complex. Consultation closes on 12 July 2021, with the measures to apply from 1 October 2021. For more detail on how the proposals affect your business, please contact us.