Navigating Tax Changes in NZ – What You Need to Know

With the NZ government adjusting policies to meet changing economic needs in our country, tackling tax changes can feel like navigating uncharted waters. And, although we have already covered what a National-led government might mean for your taxes in a previous article, more changes are on the way. So, whether you’re a property owner, investor, or trustee we’ll simplify some of these complex tax updates for you so you can navigate with confidence. Here are the changes that you need to know.

Returning the Bright-line Test to 2 Years

Starting July 1, 2024, the NZ government will implement changes to how profits from selling residential land are taxed. 

Previously, sellers might face taxes if they sold a property in less than five or ten years, depending on when they acquired it and if it was considered ‘new build land.’ However, Finance Minister Nicola Willis clarified that from July 1, 2024, properties sold within two years of ownership will be subject to the bright-line rules.

This adjustment aims to simplify the regulations for residential property owners, narrowing down the timeframe and reducing complexities. While this change is viewed positively, it’s essential to proceed with caution, considering that formal legislation is pending, and uncertainties remain regarding its application to sales agreements made after July 1, 2024. Additionally, potential changes in apportionment provisions and the retention of rollover relief provisions under the revised bright-line period require consideration.

Removing Building Depreciation

Depreciation, the decline in value of a commercial property due to factors like wear and tear and aging, creates tax implications when a property is sold, resulting in accumulated depreciation becoming taxable income. However, the NZ government has announced its intention to eliminate building depreciation as a revenue-generating measure, effective from April 1, 2024.

This change means property owners may face higher taxes upon selling, as depreciation, which previously provided deductible expenses, will no longer be applicable.

Mortgage Rate Deductibility

Since October 1, 2021, landlords faced limitations in claiming interest deductions for mortgage payments on rental properties. However, starting April 1, 2024, they can gradually start claiming a portion of their interest costs against rental income, with the percentage increasing over the next two financial years.

This phased approach will allow landlords to deduct 60% of interest costs in 2024, 80% in 2025, and 100% by 2026, potentially easing their tax burden.

Proposed Changes to Trust Tax Rate

From the 2024/2025 tax year, trusts may be subject to higher tax rates. Those earning less than $10,000 would face a 33% tax rate, while income exceeding $10,000 would be taxed at 39%.

This proposed change aims to create a fairer tax system and align trust taxes more closely with personal income taxes.

Let’s Break It Down Together

Don’t let these tax changes overwhelm you. Our team of experienced client advisors can provide you with personalized guidance to meet your unique circumstances. Your financial future is important, and we’re here to help you secure it. Get in touch with us today.