NZ Brightline Rules and Interest Deductibility

Individual Tax Rates

From 1 April  2021 the top individual  tax rate will increase to 39% from 33%.  The 39% will be applied to income earned by individuals over $180,000 per annum. All other tax rates, including the corporate tax rate, remain unchanged. 

Residential Investment – Brightline Rules and Interest Deductibility

In an effort to control rising house prices, the NZ government has implemented the following tax changes in regard to residential investment properties. Whether this will achieve the NZ’s government desired effect of taking the heat out of housing prices remains to be seen.

New Build Residential Investment Properties

  • For new build residential investment properties purchased on or after 27 March 2021, there will be a 5 year period for which any gain will be taxable on sale under the Brightline Rules.
  • The government is considering an exemption for new builds to enable them to continue to claim interest.

All Other Residential Investment Properties  (Other than New Builds)

  • For residential investment properties purchased on or after 27 March 2021, there will be a 10 year period for which any gain will be taxable on sale under the Brightline Rules. Previously this was set at 5 years.
  • For residential investment properties purchased on or after 27 March 2021, from 1 October 2021 the interest deductibility will be removed. Therefore you can only claim interest up to 1 October 2021.
  • For Investment properties purchased before 27 March 2021, 100% of the interest can be claimed up to 1 October 2021. After this date interest deductibility will be reduced over a 4 year period. Please see the table below.
  • If money is borrowed on or after 27 March 2021 to maintain or improve a residential investment property and it was purchased before 27 March 2021, the interest deductibility will be removed. So, you can only claim interest up to 1 October 2021.
  • The government is considering whether those taxed on the sale of a property i.e. under the Brightline rules will be able to deduct the interest expense at the time of sale.

Please note the changes above do not affect the ring fencing of rental losses.  Rental losses continue to be ring fenced and can only be used to offset income from other residential property.

NZ Minimum Wage

The adult minimum wage will go up, from $18.90 to $20.00 gross per hour, and the starting-out and training minimum wage will go up from $15.12 to $16.00 gross per hour.

If you have employees on the minimum wage, employers should send them a letter or email (variation of employment contract) advising them of the new wage.

If any employees are on starting-out or training wages, employers should check when they will be eligible to move onto the adult rate. Employers should also check that any affected employment agreements (contracts) are updated.

There could be potential impacts due to internal wage relativity (e.g. how employees are paid compared to each other) and external benchmarking (e.g. how your pay rates compare to others in your industry or sector).

Contact the team at Alliott NZ Ltd in Auckland about Doing Business in New Zealand or grab a free copy of our guide.