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 hello@smefinancial.co.nz, or visit our website https://smefinancial.co.nz to get in touch.

Together we can achieve more. 

Your home office: What expenses can you claim?

Home office expenses: a guide

Almost everyone has been working from home this year – some of us loved it, some of us hated it. But whether you love the chilled-out pyjama vibe or you’re longing for the bustle of a busy office, it does add a little extra to the power and water bills. 

 

So, how much can you claim in expenses when you’re working from home?

 

Home office expenses when you’re an employee

 

If you worked from home during Lockdown, is your employer required to cover some of your home office costs? Sorry, no. Despite earlier rumours of an Inland Revenue sum of $15 a week for those working from home, there is no obligation for your employer to recompense you for extra power, water, gas or phone costs. 

 

Your employer can choose to pay you up to $20 a week tax-free for expenses or a one-payment of up to $400 for furniture; that money comes out of their own pockets, not the government’s. 

 

Home office tax deductions – what can you claim? 

 

Whether you’re a contractor, sole trader, in a partnership or you own your own business, you can claim expenses for your home office. But the amount you’ll read about on the Inland Revenue website is – perhaps intentionally – much lower than what you might actually be able to claim. 

 

Inland Revenue provides a simplified per metre calculation rate of $42.75 per square metre for your home office for the 2019-2020 year. The calculations provided by Inland Revenue are extremely conservative and don’t take into account all the ways you might use your home. For example, your garage is excluded on this visual guide. But if you’re a contractor who uses the garage to store work tools and equipment at night, that’s a business use. And the numbers use a dedicated home office as an example, when thousands of Kiwi business owners use the kitchen table as their office. How do you work that out? We can help. 

 

IR numbers are just a starting point

 

The number you’ll come up with using the online information is a baseline only – by making sure we fully understand the configuration of your home we could add considerably to that. As a guideline, you may be able to claim between $100 and $300 per month. Give us a call or drop us an email, and we can make sure you’re claiming as much as you’re entitled to. We can provide a new perspective on how you use your home and how your business is positioned as part of your household expenses. 

 

We always work within the tax laws, making sure our clients get the maximum benefit possible by ensuring we fully understand the way you work from home and then working to maximise their claims – we ask questions, we dig into your accounts, and we aim to minimise the amount of tax you have to pay.