Taxation of residential investment property

As at 31 March 2022 (see the page history for details of changes)

• Status
• Overview
• More information

Updates

• 31 March 2022 – The new legislation was enacted on 30 March 2022, a special report on the interest limitation and additional bright-line changes is available
• 3 March 2022 – Bill reported back to Parliament following consideration by the Finance and Expenditure Select Committee, their report, the Bill as reported back, and the officials' report on submissions received on the Bill are now available
• 12 October 2021 – Commentary released on the draft legislation proposals, including detailed explanatory information on the interest limitation proposals
• 1 October 2021 – Parliament's Finance and Expenditure Committee are now accepting submissions on the tax Bill, including the interest limitation proposals. The closing date for submissions is 9 November 2021.
• 28 September 2021 – The Government released draft legislative proposals aimed at limiting interest deductions for residential investment properties. The proposals are included in proposed amendments to the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Bill.

Overview

In March 2021 the Government announced several changes to the taxation of residential investment property including:

• extending the bright-line test for residential properties from five to ten years (this change became law in March 2021), and
• limiting interest deductions on residential investment properties (the design of the rules were consulted on).

In September 2021 the Government released draft legislative proposals aimed at limiting interest deductions for residential investment properties. These proposals will be considered by Parliament and may change.

In summary, residential investment properties capable of being used for long term accommodation would be subject to the proposed rules. However, the following exclusions and exemptions are proposed:

• an exclusion for the main family home
• exclusions for several types of residential property, and
• exemptions for new builds and for property development.

The following information sheets provide general information about how the proposed rules are intended to work:

1. Interest deductibility proposals at a glance
2. Properties not affected by the interest deductibility proposals
3. How the rules work for certain entities
4. Exemptions for property development and new builds
5. How interest deductions are affected
6. Changes to the bright-line property rule

For detailed information see:

• Supplementary Order Paper No 64 to the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Bill
• a regulatory impact statement prepared by Inland Revenue – Limiting interest deductibility on residential investment property
• a commentary containing detailed explanatory information on the interest limitation proposals
• the Finance and Expenditure Committee's report on the Bill
• the Bill as reported back to Parliament
• the officials' report on submissions received on the Bill
• the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (enacted on 30 March 2022)
• a special report on the new legislation for the interest limitation and additional bright-line changes (an early edition of the Tax Information Bulletin, published 31 March 2022)

More information

Tax policy announcements and publications.

Related announcements

• 23 March 2021 – Government property announcements
• 24 March 2021 – Tax Bill passed [included extension to the bright-line test]
• 10 June 2021 – Interest deductibility consultation launched
• 26 July 2021 – Questions and answers on property investment proposals
• 28 September 2021 – Government releases interest limitation proposals
• 12 October 2021 – Commentary on Supplementary Order Paper released
• 3 March 2022 – Tax Bill reported back
• 30 March 2022 – Tax Bill passed
• 31 March 2022 – Special reports on measures in new legislation

Related publications

• Government discussion document on interest deductibility (includes links to the seven summary sheets) (published 10 June 2021)
• Questions and answers (published 26 July 2021)
• Commentary on Supplementary Order Paper to the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Bill (published 12 October 2021)
• Officials' report on submissions received on the Bill – February 2022 (published 3 March 2022)
• Special report on interest limitation and additional bright-line changes (published 31 March 2022)
• Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022

Page history:

• Last updated: 31 March 2022
• Changes made:
  • 8 March 2022 – Bill reported back to Parliament by the Finance and Expenditure Committee on 3 March 2022
  • 12 October 2021 – a commentary on the SOP was released
  • 11 October 2021 – minor updates to the overview section
  • 1 October 2021 – added status update (submissions can now be made to Parliament's Finance and Expenditure Select Committee), improved overview
  • 28 September 2021 – Initial page published
  • 31 March 2022 – added news items from 30 and 31 March 2022, added link to special report and the Act