The Government has made major changes to residential property taxing provisions.
When considering the rule changes note that:
interest deductions on a residential investment property acquired on or after 27 March 2021 will not be allowed from 1 October 2021,
the interest deductibility rules for properties acquired before 27 March 2021 will be phased in over four years,
There may be an exemption for residential investment properties that are new builds, details of this are not yet available,
the 10-year bright-line test applies to a residential property (other than your main home) acquired on or after 27 March 2021 (excluding new builds which are still a 5-year bright-line test).
In our view the age-old rule that ‘cash is king’ continues to apply, therefore the two key areas to focus on if you own residential investment property are:
What is the cashflow impact of the tax changes on a monthly basis?
When is your next debt review cycle with your bank and will this result in principal repayments? (If you are currently on interest-only loans)
If you decide to sell a residential investment property remember to check the implications of the bright-line test on that decision. See two fact sheets produced by the IRD on the new rules:
If you want to discuss your property tax strategy and property cashflow cycle please get in touch.