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Government takes aim at housing.

Yesterday, the government announced policies aimed at investors and first home buyers. The property market is fickle right now, and there is no real way to predict how these changes will truly affect the property market overall.

Firstly, for Investors, the bright line test has been extended from five to ten years.

Every year an article is published about a house, that is brought and sold within a week for a massive profit, the bright line test is the way in which IRD works out if there is tax on that profit. It essentially means if you buy and sell a property, outside of your home, within a short period of time, you will pay tax on any profits made if the property’s value increases.

There are exemptions for this:

  • Being if the property was your main home.

  • Also, inheritance properties are exempt.

  • In addition to this, allowing newly built homes to use a 5 year bright-line test instead of the new 10-year policy.

We have also had confirmation for those currently pending settlement and have a signed contract of sale, that if the contract was signed prior to March 27, this is the acquisition date. But as always, as we are not tax experts, we recommend seeking advice from your Accountant.

The below image can help with identifying if a property is subject to any changes.

In addition to this, Investors will now be unable to deduct interest on loans as an expense when calculating taxable income.

Initially this will only effect properties acquired after the 27th March, however properties previously owned can still claim the expense, but it will be phased out over a four year period. Any new borrowing, top ups etc. whether the property was acquired before or after the 27th will be subject to new rules. This legislation, which will take effect from 1 October 2021, is still in consultation on some of the details, so we could see further announcements and exclusions.

This will likely effect investors with interest only loans, if you are on interest only, and have positioned yourself with the ability to claim interest expense, consider sitting down with your broker and accountant restructure your lending as soon as possible.

Property developers are still able to offset this interest expense.

For first home buyers, the news is more positive.

If you are considering applying for a First home Grant, the income caps have been lifted, a single applicant can now have a maximum income of $95,000.00, while a couple can have a maximum of $150,000.00.

In addition to this, the maximum purchase price caps have been lifted around the country, the table below shows the new limits. Some of these limit’s have increase by $100,000.00.

However, with the median house price in New Zealand approaching $800,000.00 this had to happen. But, with the changes to investors and increased caps, available stocks for first home buyers should increase in the short term.

With the complexity of the property Market at the moment, its hard to say for certain the effects these changes will have. However there has never been a better time to look at your existing mortgage, investment property, or just getting on to the property ladder. Our advisors are up to date on changes as they happen and can provide you with non biased, real advice.

Disclaimer: This publication has been prepared for your general information. While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken for any errors or omissions. This publication does not constitute financial or insurance product advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. Publicly available Disclosure information can be found here.

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