New property tax law: Who’s in and who’s out and what qualifies as a new-build

The Government has revealed more details of who is likely to be exempted from the new property tax deduction rules which kick in from October and what will qualify as a new-build home.

In March property investors were shocked after the Government announced it would stop allowing them to claim interest paid on home loans as a business expense – a benefit that typically helped them lower their taxable income.

At the same time the Government’s bright-line test was extended from five to 10 years, meaning investors who sell their residential property within that time frame will have to pay tax on the sale.

It also said new build properties would stay under the five-year bright-line rule and be allowed to continue deducting interest on loans as an expense in a bid to encourage new homes to be built.

Now a further 143-page discussion document has been released giving more details on who will be affected by the change and what will count as a new build.

It specifies that residential property held outside New Zealand, employee accommodation, farmland, rest homes, hotels, motels, retirement villages and a main home used to earn income through a flatting situation will be excluded.

Kainga Ora and its subsidiaries would also be exempt.

The Government is also considering excluding student accommodation, serviced apartments and Māori land.

But it wants to capture companies who are owned by a small number of individuals (close companies) and companies whose assets are more than 50 per cent residential property investment so that taxpayers cannot use a company to avoid the tax change.

New builds that are exempted will include; a dwelling added to vacant land, an extra dwelling added to a property, a dwelling that replaces an existing dwelling,renovating an existing dwelling to create two or more dwellings and a dwelling converted from commercial premises such as an office block converted into apartments.

The document also proposes that those who acquire a new-build within 12 months of its Code Compliance Certificate being issued, or add a new-build to their land would be eligible for the new-build exemption.

The Government has asked for feedback on whether those who buy new-builds a year after the CCC has been issued but within a certain period such as 10 or 20 years should also be exempted.

Finance Minister Grant Robertson said the Government’s goal was to encourage more sustainable house prices, by dampening investor demand for existing housing stock to improve affordability for first-home buyers.

“This is part of the Government’s move to cool the property market. A more sustainable housing market supports more first-home buyers to get into their own home but also protects our recovering economy. So we all benefit.”

Revenue Minister David Parker said the proposal to exempt property development and new-builds should help boost supply by channelling investment towards increasing housing stock and away from direct competition with first home buyers and owner-occupiers for existing housing stock.

“This consultation is focused on finalising the detailed design of the rules. The proposals will not affect the main home.”

Parker said generally it was proposed that residential property would be considered a new build if it is a self-contained dwelling with its own kitchen and bathroom, and that has received a code compliance certificate.

The document is open for consultation until July 12 with the new measures due to apply from October.

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