Have you been feeling the effects of the recent property tax
changes? Two of the latest property tax changes are already affecting
residential property investors – these are the bright-line test extension to 10
years for existing builds and the decrease of tax deductions for interest
against residential income in some circumstances.


If you are a residential property investor or are looking
into building your investment portfolio, it may be the best time to review how you
will be taxed on your residential rental profits. Questions to ask are: what
tax deductions are available for costs incurred and will a final disposal
result in any tax payable? It also always a good idea to look into how best to
structure your property investments.


Tax Deductions


You need to consider several factors to determine the
deductible interest related to borrowings for a residential property. Is the
property subject to the new interest limitation rules and do any exemptions
apply to the person or entity that holds the residential property?


When will the interest limitation rules apply? Determine
when the residential property was acquired to determine if the interest is
fully non-deductible from 1 October 2021 or if it will be phased out from 1
October 2021 to 31 March 2025.


What interest do these rules apply to? Know what borrowings
relate to Disallowed Residential Property and whether any apportionment
calculations are required. Find out whether there are any new borrowings and if
any rollover relief is available.


Know your record-keeping systems and make sure you keep
track of the numbers you’ll put through in your tax returns. IRD has a new
section for the disclosure of interest expenses on residential properties.


Other holding costs such as professional fees, insurance,
repairs and maintenance, and rates may be tax-deductible subject to normal
deductibility requirements. Make sure you comply with the Healthy Homes
Standards.


Congrats if you’ve made it this far! Hopefully, we didn’t
make you dizzy. If you have any questions on the above, don’t hesitate to holler and we can chat about it! Your Outside go-to will be happy to answer all
your queries. Stay tuned as we’ll cover other tax considerations for
residential land owners on our next blog.


Speak soon,

Your Outside Team

 

 

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Business Accountants: Understanding Changes in Residential Property Taxation

Recent years have seen significant adjustments to the tax landscape, particularly concerning residential property. The government has responded to calls from various quarters to address investor demand in this sector. Notably, recent changes have been initiated to reverse tax policies affecting residential property, aligning with promises made by both National and ACT during their election campaigns.

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