Given the outcome of the general election, we expect to see legislation that will make the following tax changes.
The ability to claim interest deductions on debt relating to some residential rental properties acquired before 27 March 2021 will be progressively phased out. National’s tax policy promises to retain a 50% allowable deduction in the year ended 31 March 2025 (rather than reduce it to 25%), increase it to 75% in the year ended 31 March 2026, and fully restore 100% interest deductibility from April 2026 onward. From start to finish this means the interest deductibility on affected properties will be:
| Date Interest Incurred | % interest claimable |
| 1/4/21 – 30/09/21 | 100% |
| 1/10/21 – 31/03/22 | 75% |
| 1/04/22 – 31/03/23 | 75% |
| 1/04/23 – 31/03/24 | 50% |
| 1/04/24 – 31/03/25 | 50% |
| 1/04/25 – 31/03/26 | 75% |
| 1/04/26 onwards | 100% |
National also proposed to reduce the brightline period for residential investment properties from 10 years (or five years if the property is a ‘new build’) to two years by July 2024. As a result, properties acquired before July 2022 should not be subject to the brightline test on sale.
Given how complex the current rules are, there is a risk that unwinding them will be equally complex, hence we are unlikely to be out of the woods yet.
