23 March 2021: Labour extends the bright-line test to 10 years, and changes interest deductibility for landlords

From 27 March 2021 (this Saturday) the bright-line test – a capital gains tax on residential properties excluding the family home – will be extended from 5 to 10 years, meaning profits from the sale of such properties within 10 years of buying it will be taxed.

This occurred despite Finance Minister Grant Robertson committing to not extending the bright-line test prior to the election.

The 5-year rule stays in place for new builds.

Investors are also being targeted with the removal of interest deductibility for residential investment from 1 October 2021. At first, this would only apply to property purchased after 27 March  2021 before applying to all residential property by 2025. New builds may be excluded.  Under the Government's rule changes, if you acquired property before 27 March 2021, you can still claim interest on pre-existing loans as an expense against your residential property income, but this will be phased out over the next 5 tax years.  

"Extending National’s bright-line test and removing interest deduction loopholes for investors will dampen speculative demand and tilt the balance towards first home buyers," Finance Minister Grant Robertson said.

Andrew King, NZ Property Investors Federation president, and Sharon Cullwick, federation executive officer, were both taken aback by the Government's decision to eliminate interest rate tax deductions, which investors can currently claim on properties. "What, so every other business in New Zealand can still claim tax deductions, but not landlords?" King asked.

Comment: There will inevitably be fewer private sector landlords in the future,  and more need for state housing.

Kainga Ora will be allowed to borrow $2b to build more affordable and state housing.

Revenue Minister David Parker said the Government was considering ending interest-only loans, and the Reserve Bank was looking at bringing in debt-to-income caps for mortgage lending.

The income caps for the Government’s First Home Grants and First Home Loans will be raised from $85,000 to $95,000 for single buyers and from $130,000 to $150,000 for two or more buyers.

The property price caps would also raise to $700,000 in Auckland, $650,000 in Wellington and Queenstown, $600,000 in Nelson, Tauranga, Hamilton, and Napier, $550,000 in Christchurch, and Dunedin, and $500,000 in the rest of New Zealand.

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