Since 1 October 2021, the following rules apply.
- Interest cannot be claimed for residential property acquired on or after 27 March 2021 unless an exclusion or exemption applies.
- The ability to deduct interest is being phased out between 1 October 2021 and 31 March 2025 for properties acquired before 27 March 2021.
Interest deductions for any new loans drawn down on or after 27 March 2021 will not be allowed from 1 October 2021 onwards.
If your rental property is financed by a loan in foreign currency, any interest is non-deductible from 1 October 2021 unless it is refinanced with a New Zealand dollar loan.
|Date interest incurred||Percentage of interest that can be claimed|
|1 April 2020 to 31 March 2021||100%|
|1 April 2021 to 30 September 2021||100%|
|1 October 2021 to 31 March 2022||75%|
|1 April 2022 to 31 March 2023||75%|
|1 April 2023 to 31 March 2024||50%|
|1 April 2024 to 31 March 2025||25%|
|On or after 1 April 2025||0%|
Acquired date for tax purposes
For tax purposes, a property is acquired on the date a binding sale and purchase agreement is entered into (even if some conditions still need to be met).
A property purchased on or after 27 March 2021 can qualify for phased-out interest deductions only if it was purchased as a result of an offer made on or before 23 March 2021, and that offer was not able to be revoked or withdrawn before 27 March 2021 (for example, by tender).
QB 17/02 has full information on when a property is acquired.
taxtechnical.ird.govt.nz: QB 17/02 - Income tax - date of acquisition of land, and start date for 2-year bright-line test.
Property types the rules apply to
The interest limitation rules apply to residential property in New Zealand. The rules do not apply to overseas property.
Any property with a dwelling on it (such as a house or apartment) is subject to these rules, as is bare land that could be used for residential property.
It does not matter whether the property is rented out long or short-term, used for short-stay accommodation some or all of the time, or left vacant.
Property types excluded from the rules
Main homes are generally not affected. You cannot claim interest deductions for private use.
If the interest relates to income you earn in your main home, for example, from having flatmates or boarders, you can deduct some interest against this income.
Other properties also excluded from the interest limitation rules are listed in Schedule 15 of the Income Tax Act 2007.
Properties excluded from the interest limitation rules
Exclusions for certain entities
The interest limitation rules do not apply to most companies where their core business does not involve residential land. These are companies where residential property (including new builds) makes up less than half their total assets.
Companies where 5 or fewer individuals or trustees own 50% or more of the company (referred to as close companies) will have to apply the rules even if their core business does not involve residential land.
There are exceptions for close companies that are Māori authorities or wholly owned by a Māori authority.
Kāinga Ora and its wholly-owned subsidiaries are excluded because they provide emergency, transitional and social housing.
How the rules work for different entities
Exemptions from the rules
If the interest limitation rules apply to your property, you may still be able to claim interest if you qualify for one of the following exemptions:
- land business
- property development
- new build land.
For interest to be deductible, it must not be private in nature and the general deductibility rule must be met.
Exemptions from the interest limitation rules
Renting out your holiday home
The interest limitation rules apply to interest relating to residential property that is rented out some of the time and used privately some of the time.
This is the case with many holiday homes. Interest expenses for such properties are non-deductible from 1 October 2021 unless the interest qualifies for the phasing out approach.
Find out if the rules apply to you
Completing your income tax return
When you complete your income tax return, you will need to consider how the interest limitation rules apply to your property and calculate the total interest on residential property and the amount of interest you can claim.
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