Property

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Title: Property Webinar

Changes coming in April 2024

Narrator

Kia ora everyone and welcome to this webinar.

My name is Helen Mitchell and with me today is Rian Shearman. We are both External Relationship Managers at Inland Revenue.

The information in this presentation is correct as at the 18 March 2024 and may be subject to change.

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Nau mai

Haere mai

Welcome

Title: Topics

• Interest limitation rules for residential property
• Depreciation changes
• Extinguishing bright-line losses
• Bright-line property rule

Narrator

In this webinar we’re going to be discussing the upcoming changes for property, including interest limitation rules for residential property, depreciation, extinguishing bright-line losses for tax debts written off and the bright-line property rule.

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Title: Interest limitation for residential property

Image: A group of houses in a neighbourhood

Narrator

Let’s start by looking at the changes that are being proposed for the interest limitation rules for residential property.

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Title: Interest limitation

Sub-title: For residential property

From 1 April 2024, the ability to claim interest deductions will be phased back in:

There will be no change for the period 1 April 2023 – 31 March 2024

Narrator

From 1 October 2021, the ability to claim interest as an expense for residential property began to be phased out.

From 1 April 2024, the ability to claim interest deductions will be phased back in, restoring interest deductions to 100% from 1 April 2025.

There will be no change for the period 1 April 2023 – 31 March 2024. You will be able to claim 50% of the interest incurred if the property was acquired before 27 March 2021. For those who acquired a property after that date, interest deductions can be claimed at 80% from 1 April 2024. This means customers will be following the same rules regardless of when they acquired their property.

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Title: Interest limitation

Sub-title: For residential property

From 1 April 2024, you will be able to claim 80% of the interest incurred.

Interest deductions that were previously denied under the current rules will remain denied.

Narrator

For the first year, 1 April 2024 – 31 March 2025, you will be able to claim 80% of the interest expenses you incurred in the year.

Interest deductions that were previously denied under the current rules will remain denied. This means you will not be able to request a reassessment to claim amounts previously denied.

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Title: Interest limitation

Sub-title: Clarifications

Property the interest limitation rules apply to and how the rules work for different entities will remain unchanged.

The rules for denied interest deductions when a property is sold will be retained.

Narrator

Property the interest limitation rules apply to and how the rules work for different entities will remain unchanged. This means all the current exclusions and exemptions will continue to apply.

The rules for denied interest deductions when a property is sold will be retained. This means, if the sale of the property is taxable under the bright-line property rule or one of the other land sale rules, the amount of the previously denied interest will be treated as if it were part of the cost of the property in the year of disposal.

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Title: Depreciation

Image: A group of houses in a neighbourhood

Narrator

That was our final change for interest limitation. We’ll now look at the changes for depreciation.

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Title: Depreciation

Sub-title: Updating the definition of ‘building’

The definition of ‘building’ for the purposes of the depreciation rules will be updated to include a part of a building owned under a unit title.

Will apply retrospectively from the 2020-21 income year.

Narrator

It is proposed that the definition of ‘building’ for the purposes of the depreciation rules will be updated to include a part of a building owned under a unit title.

This will apply retrospectively from the 2020-21 income year, when depreciation for non-residential buildings was reintroduced.

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Title: Depreciation

Sub-title: Depreciation for non-residential buildings

The ability to claim depreciation for non-residential buildings was reintroduced as part of the COVID economic stimulus measures.

From the 2024-25 income year the depreciation rate will return to 0%.

Narrator

The ability to claim depreciation for non-residential buildings was reintroduced as part of the COVID economic stimulus measures. As we are no longer in a COVID response situation, the depreciation rate will return to 0% from the 2024-25 income year.

I will now hand you over to Rian.

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Title: Extinguishing bright-line losses

Image: A row of houses down a street

Narrator

Thanks Helen. Now we’ll take a look at extinguishing bright-line losses.

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Title: Extinguishing bright-line losses

If you have tax debts written off on or after 1 April 2024, any accumulated bright-line losses will be extinguished, up to the amount of the tax debt written off.

This will apply even if the bright-line losses relate to a previous income year.

This will align the treatment of bright-line losses to other loss types.

Narrator

From 1 April 2024, if you have tax debts written off, any accumulated bright-line losses will be extinguished, up to the amount of the tax debt written off. This will apply even if the bright-line losses relate to a previous income year.

This will align the treatment of bright-line losses with other loss types. If you have other balances carried forward, the amounts will be extinguished in the following order:

1. tax losses
2. excess residential rental deductions
3. bright-line losses
4. excess imputation credits

After any amounts have been extinguished, we will confirm by letter the adjusted balances available to be carried forward. You will need to use this information to update the bright-line losses carried forward balance in your records – this is not included in the income tax return.

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Title: Bright-line property rule

Image: A row of houses down a street

Narrator

Now we’ll take a look at the changes coming for the bright-line property rule.

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Title: Bright-line property rule: Flooding events

Properties purchased as part of a ‘buy-out’

Property affected by defined North Island flooding events and purchased by a Crown or local authority will not be taxable under the bright-line property rule or the other land time-related tests.

Main home exclusion

Property owners will be able to qualify for the main home exclusion if they needed to vacate their home for a reasonable period to repair damages caused by defined North Island flooding events.

Narrator

Changes have been introduced around how the bright-line property rule will apply for customers impacted by defined North Island flooding events.

The first proposed change will mean that any property affected by defined North Island flooding events and purchased by a Crown or local authority will not be taxable under the bright-line property rule and other land time-related tests.

The second proposed change will mean that property owners may still qualify for the main home exclusion if they needed to vacate their home for a reasonable period to repair damages caused by defined North Island flooding events. This will apply even if the property is vacated for more than 12 months.

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Title: Bright-line property rule

Sub-title: Main home exclusion – construction period

The construction period can be ignored when determining if the usage of the property qualifies for the main home exclusion.

Applies to residential land acquired between 29 March 2018 and 27 March 2021, regardless of whether it has already been sold.

Construction is the work to build the home and includes the design phase.

Generally, construction is considered completed when the code compliance certificate is issued.

Narrator

The construction period can be ignored when determining if the usage of the property qualifies for the main home exclusion.

This change will apply to residential land acquired between 29 March 2018 and 27 March 2021, regardless of whether it has already been sold.

You will be able to determine if you qualify for the main home exclusion by looking at your usage:

• from the date they acquire the property to before construction began, and
• from when construction was completed to when the property was sold.

Construction is the work to build the home and includes the design phase. In most cases construction is considered complete when the code compliance certificate (CCC) is issued under the Building Act 2004.

This proposal does not change how the construction period is treated for property acquired after 27 March 2021. In these cases, the construction period is treated as main home days as long as the time period is reasonable.

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Title: Bright-line property rule

Sub-title: Main home exclusion – rollover relief

The usage of the previous owner will be considered and attributed to the new owner to work out if the main home exclusion applies when rollover relief applies.

Narrator

A further proposed change will mean the usage of the previous owner will be considered and attributed to the new owner to work out if the main home exclusion applies when rollover relief applies.

An example of this situation is being updated into the Bright-line property tax guide, IR1227.

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Title: Bright-line property rule

Sub-title: Partitioning of land

The land partitioning rules will allow a difference in allocation of up to 5% of the smallest co-owner's original holding.

This will ensure disposals between co-owners on a subdivision of land are not taxed to the extent the post-subdivision allocation aligns with the original co-ownership shares.

This will apply from 27 March 2021.

Narrator

The land partitioning rules are also changing. The updated rules will allow a difference in allocation of up to 5% of the smallest co-owner's original holding. This will ensure disposals between co-owners on a subdivision of land are not taxed to the extent the post-subdivision allocation aligns with the original co-ownership shares.

This will apply retrospectively from 27 March 2021.

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Title: Bright-line property rule

Sub-title: Unintended land tainting on a partition of land

The bright-line property rule and other land time-related tests will not apply if you are associated to a property developer at the time a property was acquired and after partitioning a subdivision there is no substantive change in ownership.

Narrator

A further proposed change will mean that the bright-line property rule and the other time-related tests will not apply if you are associated to a property developer at the time a property was acquired and after partitioning a subdivision there is no substantive change in ownership.

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Title: Bright-line property rule: 1 July changes

Image: A row of houses down a street

Narrator

There’s also changes coming for the bright-line property rule from 1 July 2024.

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Title: Bright-line property rule: 1 July changes

For properties sold on or after 1 July 2024, the bright-line property rule will only apply if the property is sold within 2 years of purchasing it.

For properties sold before 1 July 2024, the current bright-line periods will continue to apply.

Narrator

Last December, the Government announced as part of their mini-Budget that the bright-line property rule will change from 1 July 2024.

For properties sold on or after 1 July 2024, the bright-line property rule will only apply if the property is sold within 2 years of purchasing it.

For properties sold before 1 July 2024, the current bright-line periods will continue to apply.

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Title: Bright-line property rule: 1 July changes

Sub-title: Main home exclusion

The main home exclusion criteria will return to the original test.

The bright-line property rule will not apply if:

• more than 50% of the property's area is used as the main home, and
• the property is used as the main home for more than 50% of the time it is owned.

Narrator

Generally, the bright-line property rule does not apply to a sale of property that has been your main home. This will not change but the main home exclusion criteria will return to the original test. This means the bright-line property rule will not apply if:

• more than 50% of the property's area is used as the main home, and
• the property is used as the main home for more than 50% of the time it is owned.

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Title: Bright-line property rule: 1 July changes

Sub-title: Other key features

Rollover relief will extend to use the associated person rules.

The rules will be limited to situations where the transferor and the transferee are associated for two years prior to the transfer and will only allow rollover relief to be claimed once in any 2-year period.

The current rules for trusts that are eligible to be Māori authorities (Māori family trusts) and settlements under the Treaty of Waitangi will not change.

The construction period can be ignored when determining if the property was used as the main home.

Narrator

For properties sold on or after 1 July 2024, rollover relief will extend to use the existing associated person rules.

The new rollover relief rules will be limited to situations where the transferor and the transferee are associated for two years prior to the transfer and will only allow rollover relief to be claimed once in any 2-year period.

The current rollover relief rules for trusts that are eligible to be Māori authorities (Māori family trusts) and settlements under the Treaty of Waitangi will not change.

The construction period can be ignored when determining if the property was used as the main home for more than 50% of the time it was owned, as we covered earlier.