Business Accountants: Understanding New Tax Changes: Bright-line Testing and Rental Interest Deductibility

The recent announcement of changes to the tax Bill currently progressing through Parliament has significant implications for property investors and businesses alike. Here’s what you need to know about the latest updates:

Interest Deductibility on Residential Rentals:

• Full interest deductibility for residential rentals will be restored gradually over two stages.
• For the year ending 31 March 2025, an 80% deduction of interest paid will be available.
• From 31 March 2026 onwards, a full interest deduction will be permitted.
• The restoration of interest deductibility applies to both pre- and post-2021 lending.

Two-Year Bright-line:

• Residential property disposals from 1 July 2024 will be subject to a two-year bright-line test.
• Gains from properties held for over two years will not be taxed, with some exceptions.
• Amendments to the main home exclusion and expanded rollover relief have also been introduced.

Main Home Exclusion and Rollover Relief:

• Previous complex changes to the main home exclusion have been removed.
• Rollover relief has been extended to cover most associated persons, facilitating easier family restructuring.

End of Depreciation on Buildings:

• Depreciation deductions for commercial and industrial buildings will cease from 1 April 2024.
• The restoration of the status quo will impact building fit-out provisions and deferred tax considerations.

Disposals of Trading Stock:

• Amendments to the Income Tax Act will limit the application of the trading stock rule for below-market value disposals.
• Exceptions will apply for associated person disposals and trading stock donated to charity.

Offshore Gambling Duty:

• Non-resident suppliers of remote gambling services to New Zealand residents will be subject to Offshore Gambling Duty from 1 July 2024.
• This duty, at 12% of profits, will apply to GST-registered persons located outside of New Zealand.

While these changes were anticipated, their implementation without the usual consultation process has raised concerns. However, expanded rollover relief and amendments to trading stock disposals are positive developments. The Offshore Gambling Duty and the restoration of interest deductibility offer both challenges and opportunities for taxpayers.

Stay updated with the latest tax developments to ensure compliance and optimize your tax strategies. For personalized advice on navigating these changes, reach out to your tax advisor today.

Your Outside Team