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Good Start By The Coalition

Matthew Gilligan is encouraged by the new regime’s approach to property, but he notes the devil is always in the detail.

By: Matthew Gilligan

29 December 2023

On November 24, 2023, New Zealand’s coalition government with National, ACT and NZ First was finally announced, and some important decisions around tax and property investment have already been confirmed.

Note that when I wrote this article many of the details were yet to be revealed (but some may have been clarified by the time you read this).

Interest Rules

The thing that we at GRA are most pleased about is that the coalition parties have agreed to speed up the reversal of the interest non-deductibility rules for property investors.

GRA and the Property Investors’ Federation (PIF) both lobbied National and ACT to get these rules repealed, and we are happy and relieved that ACT has negotiated to push through the changes more quickly than National was originally planning.

Interest deductibility will be restored to property investors over the next couple of years as outlined below.

  • 2023/24 tax year: 60 per cent of interest cost will be deductible.
  • 2024/25 tax year: 80 per cent of interest cost will be deductible.
  • 2025/26 tax year: 100 per cent of interest cost will be deductible.

It is yet to be revealed how these changes will exactly be implemented, or even if this timing is correct as announced. We say this because Nicola Willis was already on record in the media at the end of November talking about different timing, which we interpret as a misunderstanding of what has been announced.

What I can say with certainty is that the reversal of the non-deduction rules will help undo what was a manifestly wrong tax policy that caused rent increases, threw tenants out of their homes when landlords sold their properties, skewed investment away from second-hand houses, and reduced supply of rental properties.

ACT’s response to the combined lobby efforts of the PIF and GRA, and their follow-through on our request to negotiate for us during coalition talks, has shown ACT stands behind landlords and has done what they said they would.

No-Cause Notices

We are also pleased the new government will reinstate 90-day no-cause tenancy termination notices. Labour’s removal of these caused unnecessarily adversarial disputes in the Tenancy Tribunal, and resulted in landlords avoiding what they considered to be risky tenants because eviction for anti-social behaviour was so difficult. This in turn put immense pressure on social and emergency housing.

Now landlords will be more inclined to give a marginal tenant a chance because they know that if the tenant misbehaves (eg annoys the neighbours, damages the property, threatens the landlord), they won’t be stuck with them.

Bright-Line Change

Before the election, National signalled they would reduce the bright-line period from 10 years to two. So, we know what’s coming, but as yet we don’t know when it will be implemented, and whether it will be reduced to two years or some other timeframe. Whatever it is, a reduction from Labour’s imposed 10 years is good news.

Still to come is the detail. Will the rule change be retrospective on houses already owned, or prospective on new assets only? When will it take effect? The devil is always in the detail.

Foreign Buyer Tax

It was reported that the planned foreign buyer tax on residential property “will no longer go ahead”.

What has actually been agreed is that there will be no changes to the current foreign buyer rules, which stipulate that only Australians and Singaporeans can purchase residential property in New Zealand. In other words, there will be no foreign buyer tax because there will be no loosening of the foreign buyer restrictions, and hence, no foreign buyers to tax.

In summary, the policy changes around interest non-deduction, bright-line and tenancy rules are an excellent start by the new coalition government in my view. However, while it is exciting news, we need to wait to see what the detailed policy looks like. There are many unanswered questions.

We will keep you posted on the GRA website (www.gra.co.nz) as further property and tax updates are announced.

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