NZ Brightline Rules and Interest Deductibility

Changes to Tax Rules for New Zealand Residential Investment Property

Legislation has recently been enacted in New Zealand pertaining to changes in interest deductibility and Brightline Rules for residential investment properties. The changes are also retrospective.

In summary these new tax rules are as follows:

  1. Residential investment properties bought on or after 27 March 2021 now need to be held for 10 years, otherwise any gain is taxable. This is a change from the previous Brightline rules which required a minimum 5-year hold. 
  2. There is now a limitation of interest deductibility for residential rental properties. This is as follows:
  • For Residential rental property purchased on or after 27 March 2021, interest cannot be claimed as an expense from 1 October 2021, and
  • For Residential rental property purchased before 27 March 2021, interest deductions are limited to 75% of the interest paid from 1 October 2021. This will continue to decrease over a four year period, so by 1 April 2025 the interest deduction is nil.
  1. There is an exemption to the above rules for new builds. They are eligible for a full interest deduction for up to 20 years provided the code of compliance certificate was issued on or after 27 March 2020. New builds are also only subject to a 5-year Brightline hold period.  

Commercial investment properties are not subject to the above rules.

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