Banks introduce new mortgage lending restrictions

new mortgage lending restrictions

BNZ and ASB have introduced debt-to-income (DTI) restrictions – how do they work and how will they impact first-home buyers and investors? Here is what you need to know.

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How does an accountant save you money?

SME Financial Accountants

Want to cut unnecessary costs, optimise the most profitable parts of the business, and increase your overall return on investment? Let’s talk about how we can work together to support your ongoing business profitability.

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Exemptions, New Builds And More: Answers On New Property Rules

New Property Rules

Back in March, it took everyone by surprise when the Government changed its rules on interest tax deductibility for property investors, and extended the bright line test. We had a lot of questions that didn’t seem to have answers.

Now we have some guidance, because Inland Revenue has released a Q&A document covering a long list of questions about the new Government proposals for interest limitation and adding to the bright-line rules.

Here we’ve summarised some aspects of the approach that Inland Revenue has taken, and you should talk to us for more clarity around the rules for your particular situation.

What is exempt from the new limitations?

Taxation remains unchanged for:

  • Retirement villages
  • Developments, including build-to-rent and some remediation work
  • New builds (certified after 27 March 2021)

The new rules do not affect your main home.

How does the new build exemption work?

The new build exemption still hasn’t been finalised, but there are a few options being considered, including a perpetual exemption and a time limit of 10 or 20 years.

Tenants, boarders, Airbnb

Here it seems that if the person is staying within your house, there are no limits on interest deductibility. Once they’re housed in a separate dwelling, even if it’s on the same property (a granny flat for example), interest deductibility limitations will apply.

Transferring home ownership and the bright-line test

Currently, moving your home into a family trust can trigger the bright-line test. However, there is a proposal for the transfer to be effectively ignored under certain conditions. There is also a proposal to ignore a land transfer to a look-through company or partnership. Our advice? Don’t make any sudden moves on this one without talking to us first.

Helping kids into first homes

The IR provides this example: you took out a loan to help your child buy their first home, and your child pays you interest. You pay tax on the income and claim deductions on the interest. In this instance, the interest limitation rules would not apply to you.

However, if you own a second property and rent it to your child, or another family member, interest limitation rules would apply.

It’s complicated…

The new taxation regimen starts to kick in from 1 October 2021. If you own properties that might be affected, please get in touch – we can show you ways to make these rules easier to understand and comply with.

We can also run the numbers to show you how much difference these regulations will make to your overall financial position over the next few years. Should you sell up now or keep holding? We can give you the information you need to make smart decisions.

Give us a call on 09 366 7025, email us at, or visit our website to get in touch.

Together we can achieve more. 

Should you dive into tax pooling?

Diving into tax pooling

Okay, let’s be honest – paying provisional tax can be tricky. The amounts change from year to year, and bigger payments sometimes coincide with periods of low cashflow. Not to mention that if you underpay your provisional tax, you will likely be charged use of money interest (UOMI) by Inland Revenue (IR).

Tax pooling is designed to help solve this problem and smooth out your tax payments. Let us tell you how.

What is tax pooling?

A tax pool is a fund of money created by many taxpayers paying in their provisional tax. It’s organized by a registered intermediary, which works with both taxpayers and the Inland Revenue. We have partnered with Tax Traders and believe you will not be disappointed by the benefits they can bring.

When you join a tax pool, you pay your provisional tax into the fund. You can make a regular fixed monthly payment, for example, so it’s easier to manage your cashflow.

Your tax is then paid out of this fund on your behalf. The funds are held in an Inland Revenue account, which transfers them against the name of the members of the tax pool as instructed by the intermediary.

If you haven’t paid enough into the pool to cover your tax, the tax pool lends you the money at a cheaper rate than the IRD’s UOMI rate. If you have overpaid, the extra money is lent to other people in the tax pool and you earn interest.

How can you find out whether tax pooling is right for you?

The advantages of tax pooling are lower costs on late payments, earnings on overpayment, and generally making it easier to manage provisional tax payments.

If you’d like to know more about tax pooling, and whether it could work for you, get in touch.

We can help by answering your questions.

Rental tax changes are about to kick in – are you ready?

Rental Tax Changes

Earlier this year, the Government announced the removal of tax deductions on loan interest for rental properties. Previously, interest payments could be claimed as a business expense and taxed accordingly, giving property investment a tax advantage.

Now, properties bought from April 2021 onwards will not be able to claim any tax deductions for the interest paid on the mortgages. For all existing rental properties, including holiday home rentals, the tax deductibility is being phased out over four years.

Changes take effect from 1 October

Until October, the old 100% interest tax deductibility is in place. Then on 1 October this year, rental property tax deductibility reduces to 75%: you can still claim three-quarters of your interest payments as a business expense and get a tax advantage. The 75% rate remains in place until 31 March, 2023.

For the following financial year (1 April 2023 to 31 March 2024), you’ll be able to claim 50% of your interest payments as a business expense against your rental income. Then it drops to 25% for the next financial year (1 April 2024 to 31 March 2025). From 1 April 2025 onwards, no interest deductibility will be available. You can read more details here.

What should you do?

To assess how much impact this will have on your situation, we can calculate the difference this is likely to make to your overall gains or losses in the years ahead. Our forecasts will be a good guide, but the exact situation will vary depending on several other factors, too. For instance, as interest rate deductibility reduces, you may also find that rents increase to help you meet the higher costs. However, your mortgage interest payments may also go up, if (as seems likely), interest rates increase over that time.

Ideally, you should think carefully about your rental properties and whether they will still be fulfilling their role in your financial strategy. You might choose to keep them – switching from interest-only to principal-and-interest repayments could be a way to start reducing your interest costs over time. Or you could sell up and invest the proceeds somewhere else.

Talk to us to get a better understanding of what your position will be when these tax changes come into effect, so you can make smart decisions about your financial future.

Short on staff? Consider a merger | Skilled staff shortage solutions

Skilled staff shortage solutions NZ

One of the big complaints from our clients right now is a skills shortage: it’s very challenging for businesses to find quality employees, especially in highly-skilled roles. So this month, I’m looking closely at skilled staff shortage solutions.

“The scarcity of skilled and unskilled labour is at the most acute on record over the history of the survey, with firms finding it particularly difficult to hire skilled labour,” according to the NZIER. 

How do you grow your business when you’re struggling to grow your workforce? 

The Government would like you to upskill your existing team members, which is certainly a good start. But that’s of limited help if you need more people and more skills simultaneously – which is what many of our clients are facing. Hiring from offshore is more difficult than it’s ever been, and head-hunting is rife; Australian employers in a similar situation are on the prowl for Kiwi workers.

I believe there’s another option for certain types of businesses. One possibility that’s rarely mentioned is purchasing a competitor. Merging or acquiring another small business could help you to get the talent you need. Combining your existing team members with new staff across two merged businesses can create better efficiency, greater profitability, and more opportunity for growth. 

Obviously, this is not a potential solution for the primary sector, but for other sectors it has potential. And although it won’t do anything to fix the nationwide skilled staff shortage, it could boost your specific business. 

Investing in expansion

Check out the competition: is there another small business, working in your field, which has some of the talent you need? Can you acquire, or merge with, that business? 

Considering buying a business? 7 top tips to consider

It takes a considerable amount of capital to purchase a competitor’s business. That money may be an exceptional investment if you already run a profitable operation and you can grow it significantly. Given how difficult it is to find outstanding returns on investments right now, putting your money into your own enterprise might pay serious dividends. 

Alternatively, you could find a private lender who is prepared to invest in your business. Private equity investors are looking for solid businesses where they can lend their capital, through online platforms or via ‘angel investors’.

Thinking creatively

Buying another business is not an obvious or easy solution to a skills shortage for your business. But if there was an obvious or easy solution, you’d already be doing it. You’re facing a frustrating array of challenges: global shipping chaos, rising prices, ongoing coronavirus, plus all your usual customer issues on top. Thinking creatively could be the difference between thriving and simply surviving. When your competition is stuck, you can find a way to forge ahead. 

Coming up with fresh ideas on complex challenges is one of the skills we pride ourselves on at SME. We like our clients to have an edge in their industry, and we do everything we can to help. If you’re looking for some creative thinking to drive your business growth, get in touch.