Property investors regain ability to claim interest costs
Sunday, 10 March 2024
The Labour Government phased out property investors’ ability to claim home loan interest as a cost, to cut their tax bills.
It said it was to level the playing field with first-home buyers but investors argued that all other businesses were able to claim their costs.
Now, the ability to claim interest costs is returning at a faster pace than even National had promised.
Property investors are set to regain their ability to claim home loan interest as a cost at a faster rate than had been promised.
Associate Finance Minister David Seymour said on Sunday that investors would be able to claim 80% of their interest expenses as a cost for tax purposes from April 1 this year, and 100% from April 1 next year.
The previous Labour Government had been phasing out that ability for owners of existing properties, and National had promised to reinstate it but at a slower pace that would not have meant 100% was deductible until the 2025/2026 tax year.
“Help is on the way for landlords and renters alike. The Government’s restoration of interest deductibility will ease pressure on rents and simplify the tax code,” Seymour said.
“Landlords have been hit with a double whammy of rising mortgage interest rates and increasing interest deductibility limitations during a cost-of-living crisis. These costs are inevitably passed on to tenants, one of the reasons New Zealand has all time high rental costs.
“This heaped pressure on landlords and renters alike by reducing the number of rentals, pushing rents up, and making it harder for Kiwis to save for their first home.
“Competition helps keep prices affordable. Reducing supply reduces the number of options and drives up prices. Removing the ability for landlords to claim interest expenses made residential properties less attractive and reduced the pool of properties for tenants to choose from.”
He said there needed to be an environment where investment and development was encouraged.
He said the changes were expected to be added to the Taxation Bill which is currently before select committee.
Corelogic chief property economist Kelvin Davidson said it was unlikely to “open the floodgates” of investors because yields were still low and interest rates high.
Most investors buying at the moment were facing having to significantly top up rent payments to cover their mortgages.
“Interest deductibility doesn’t turn it from a loss to profit.”
It might make the loss a little more acceptable for some investors, but not all, he said.
But he said it was part of a wider trend of circumstances becoming more favourable for investors, including the reduction in the bright-line test and rising rents.
The coalition agreement between National, Act and NZ First had indicated that landlords would be able to deduct 60% of their interest for the 2023/24 tax year but it remains at the 50% that was set by the Labour phaseout.