On 23 March 2021 the Government announced its intention to make a number of changes to the bright line rule, main home exemptions, first home grants and the ability for property investors to write off interest expenses against their rental income.
This article provides a summary of these changes.
First home grants
The Government has announced that from 1 April 2021 income caps for the Government first home buyer's grant will be increased from $85,000 to $95,000 for single buyers, and from $130,000 to $150,000 for two or more buyers.
The property value caps for the first home grant are also being lifted in some regions as of 1 April 2021:
The Government's changes to the existing bright-line rule extend the length of time properties are subject to the bright-line test from 5 years to 10 years. Following the changes to the bright line test any residential property acquired on or after 27 March 2021 will be subject to bright line if sold within 10 years of being acquired. This extension will not apply to new-builds which will still be subject to the 5 year bright-line test, the IRD has advised that the definition of a new build.
Main Home exemption
The new announcement also brings changes for residential properties acquired on or after 27 March 2021 regarding the treatment of the main home exemption.
Under the new provisions, any property which has been used as the owner's main home for the entire time they owned the property will continue to be exempt from any bright-line test. However, for any property acquired on or after 27 March 2021 the new "change of use" rule will apply.
The "change of use" rule means that when an owner stops using a residential property as a main home for more than 12 months at a time this will be recorded as a change of use until the owner switches back to using the property as their main home.
When the property is sold, income tax is only payable on the proportion of time the home was not being treated as the owner's main home.
Date of acquisition
The date that a property is acquired determines whether the applicable bright-line period will be 5 or 10 years, and which rules relating to the main-home exclusion and change of use will apply. The IRD provides that for tax purposes a property is acquired on the date a binding sale and purchase agreement is entered into. This means that if you have entered into a signed agreement for the purchase of a residential property dated before the 27th March 2021, the property will still be subject to the 5 year bright-line rule even is there are some conditions of the contract still to be met.
New tax changes
The announcement by the Government also brings with it changes to the way property investors can offset interest expenses against their rental income. We recommend property owners talk to their accountants to find out how this will affect them.
Our advice for now
Cavell Leitch experts are happy to assist both vendors and purchasers (as well as agents) with their queries about buying and selling.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.