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. 

Growing pains: expanding a one-person business can be a challenge

Expanding a Business

Awesome, your business is growing! You have more clients, or your clients are spending more. Maybe you’re offering more products or services; hopefully you’re also making more money. It all sounds like you’re moving in the right direction.

 

But with growth comes growing pains. You might also be working longer hours, struggling with cashflow, losing track of invoicing and starting to occasionally drop the ball on jobs because you’re so busy. This is a critical point: how can you manage your business so you don’t lose control of your growing workload?

 

These are some of the challenges we often see facing our clients. One-person businesses that expand too quickly can seriously struggle. Wages and taxes must be paid, while outstanding debts can pile up rapidly. The business owner is stressed out and overworked, invoicing gets forgotten, clients start complaining and the quality of work begins to deteriorate. All this adds up to leave the owner short of cash and scrambling to survive.

 

However, with some planning, a little research and a bit of investment, you can grow a one-person business into a thriving enterprise with a happy team.

 

Our client Bruce is a great example; he’s an electrician who decided to go out on his own in mid-2020 as the demand for electricians (or any tradie for that matter) ramped up. There’s no shortage of work out there for Bruce – he’s reliable, friendly and reasonably priced, so he’s hugely in demand (we’ve changed his name to protect his privacy). In fact, he’s so popular that he’s busy all the time. He doesn’t even have time to reply to queries he gets from new clients and his phone rings all day. He’s trying to manage three new contractors and a couple of employees (including an apprentice) across up to 20 different job sites each day. He doesn’t always manage them as well as he could, so Bruce often ends up back on the tools doing basic work.

 

We’ve been working with Bruce to try to help him get things back under control. He’s identified some of his strengths: dealing with customers and council, quoting, and onsite problem-solving. Those are the jobs we want him to keep doing, while handing off the jobs he likes less to other people and systems. We’ve helped him sign up for simPRO field management software so he can keep track of his team, progress on jobs, and generating quotes and invoices. Bruce has hired a part-time bookkeeper to send and chase up invoices and quotes. He’s come up with a system of pre-written reply emails to keep new enquiries under control.

 

You can grow sustainably and successfully – just don’t be afraid to ask for help. Investing in the right advice will almost always pay dividends; you’ll have the support you need to build a thriving team and a valuable business.