The tax change property investors need to be aware of

News

New legislation details regarding the government’s plan to limit and phase out property investors’ interest deductions also reveal other impacts to property investors.

The move to phase out interest as a taxable deduction aims to make rental property a less attractive option for investors over other assets with more supply. This is due to the rising issue of housing availability for first home buyers in a demand-driven market.

Though this change to the tax rules is not a solution to the housing issue, their impact cannot be discredited.

Earlier this year, the bright-line test was extended from 5 years to 10 with similar intentions of reducing the incentive to invest in housing over other assets.

What Does This Mean? 

For property investors who borrowed to acquire residential property before March 27, 2021, interest deductions will be phased out between October 1, 2021, and March 31, 2025.

Residential property investors who borrow to acquire residential property on or after March 27, 2021, will not be allowed to deduct interest incurred after October 1, 2021 (unless an exception applies).

Private residential investment properties capable of being used for long-term accommodation may also be subjected to the interest deduction ruling.

There are some exemptions to this new ruling.

  • A property that received its code compliance certificate on or after 27 March 2020 will be eligible to deduct interest for up to 20 years from the time the property’s code compliance certificate is issued. The exemption will apply to both the initial purchaser of the new build and any subsequent owner within the 20 year period.
  • Purpose-built rentals (large residential developments designed for ongoing rental rather than for a sale)
  • Short-term accommodation providers (e.g. hotels)

If you would like to know more about the new rules around tax and interest deductions and how they might impact you, speak with us today.

Posted on 10 Dec 2021, under Rule Changes.