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.
Exemption for land business
The land business exemption applies for interest relating to land if you hold that land as part of a:
- development
- subdivision
- land-dealing business
- business of erecting buildings on land.
Interest relating to remediation work and other expenses from ownership and development of the land will also qualify if this exemption applies.
Exemption for other property development
If you do not qualify for the land business exemption, the development exemption applies for interest relating to land that you:
- develop
- subdivide, or
- build on to create a new build.
You can only deduct interest if existing tax rules allow you to, even if you qualify for the exemption.
The exemption applies from the time you start developing the land and usually ends when you sell the land or are issued a Code Compliance Certificate (CCC) for your new build. Once your new build receives its CCC, the new build exemption will apply instead.
Exemption for new builds
A new build is a self-contained residence that is issued a Code Compliance Certificate (CCC) under section 95 of the Building Act 2004, confirming the residence was added to the land on or after 27 March 2020.
A new build is also a self-contained residence acquired off the plans that receives its CCC on or after 27 March 2020 confirming it has been added to the land.
A place only qualifies as a new build if it is self-contained. This means the new build needs to contain its own cooking and bathroom facilities and have its own entrance. The entrance can be from a shared access way, for example, a hallway shared by a block of flats in the same building.
A new build does not have to be made of new material or constructed onsite, so it can include modular and relocated homes.
The following are new build examples. A self-contained dwelling:
- added to bare land
- added to land that has an existing dwelling on it, whether stand-alone or attached (apportionment will be required)
- or multiple self-contained dwellings replacing an existing dwelling
- converted from a commercial premises or a hotel/motel
- part of a dwelling converted from a single dwelling.
An existing property can also qualify as a new build if it was:
- previously on the earthquake-prone buildings register, but has been remediated and then removed from the register on or after 27 March 2020
- has been at least 75% re-clad because of weathertightness issues and received a CCC for the re-clad on or after 27 March 2020.
The new build exemption generally starts from the date a CCC is issued for a new build. For new builds purchased off the plan, the exemption starts from the date you entered into an agreement to purchase it. For motel and hotel conversions, the new build exemption starts from the date the local authority or building consent authority records indicate the conversion was complete.
The exemption expiries 20 years after a new build is issued its CCC or when the new build ceases to be on the land (for example, it is demolished or removed), whichever is earlier.
Where a new build is acquired off the plans and before its CCC is issued, the 20-year fixed period runs from the date of the CCC. Special rules also apply for hotel/motel conversions, and for new builds that receive their CCC after a significant delay.
The exemption applies to anyone who owns the new build within this 20-year fixed period, and the timing of the exemption does not reset when the property is sold.
If interest relates to land with both a new build and a non-new build, then only part of the land is considered new build land. You need to apportion the interest between the new build land and the non-new build land. Only interest incurred in relation to the new build land qualifies for the exemption.
Use this calculator to help you work out how much interest is deductible in relation to the new build if apportionment is required.
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