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. 

Surprise tax bill? Here are six possible reasons

Surprise tax bill

Did you, or someone you know, get a surprise tax bill they weren’t expecting?

Several Kiwi’s have recently been in touch after having received tax bills that took them by surprise, and they’ve been asking Inland Revenue what’s going on.

An Inland Revenue spokesperson has provided six likely reasons that more people seem to have been caught out this year:

  1. Last year, tax bills below $200 were written off as part of the pandemic support measures. This year, it’s back to the usual write-off threshold of $50.
  2. Inland Revenue is now doing tax assessments for everyone, so some people are getting bills or refunds who never have before, including some children with KiwiSaver funds or other investments.
  3. Anyone paid 27 fortnightly wage packets may have underpaid their tax – that can be fixed once IR has the correct information.
  4. Many incorrect tax codes were corrected last year, and for a few people (mainly aged over 65) the IRD made errors which they are correcting.
  5. Pension tax code changes were delayed, leading to some undertaxing which is now being rectified.
  6. Some people’s tax codes are still incorrect.

We can sort out any surprise tax bill issues

Ultimately, the Inland Revenue calculates your tax based on the information they have about you and your business. If they have the wrong information, you may be paying too much tax or too little tax.

We can look at your surprise tax bill and help you work out what’s gone wrong. We can also deal with Inland Revenue on your behalf to give them the right information and ensure you’re paying exactly what’s required and no more. We’ll work with Inland Revenue to get your refund sorted out or to come up with an affordable payment plan.

Get in touch – our tax specialists at SME Financial are here to help.