Government Housing Policy Package – Extension of the Bright-line Test, Closing of Interest Deductibility and Supply Stimulus

By Clare North

23 March 2021

The Government has this week released its housing policy package aimed at increasing residential housing supply and easing demand by property investors.

The key features of the package are:

1. A $3.8 billion Housing Acceleration Fund
2. Increased accessibility to First Home Grants and Loans for first home buyers
3. Extension of the Bright-line Test
4. Removal of the interest deductibility for investors
5. Government support for Kāinga Ora borrowing
6. Extension of the apprenticeship initiative

For property investors:           

• The Bright-line test is being extended so that if you buy and sell a residential property within 10 years you may have to pay income tax on any profit made on the sale. The existing shorter timeframe of five years will remain in place for new builds and the existing exemptions for the sale of a main/family home, inherited property and the sale of deceased estate property will continue to apply however if you rent out your family home for a period of twelve months or more, then your family home may also be subject to the Bright-line Test. The new rules will apply to property acquired on or after 27 March 2021.

• The removal of the interest deductibility means that you may no longer be able to offset interest expenses against your rental income when calculating tax payments. While the Government is still to consult on the detail of the legislation (in particular, a possible exemption for new builds), the new rules are set to apply from 1 October 2021 to property acquired on or after 27 March.

• Interest on loans for properties acquired before 27 March may still be claimed as an expense. However, the amount which may be claimed will be gradually phased out over the coming years.

For first home buyers:

• A First Home Grant can provide up to $5,000 for individuals and up to $10,000 for two or more buyers to assist with the purchase of an existing home. Purchasers of new builds can claim up to $10,000 for individuals and up to $20,000 for two or more buyers.

• Under a First Home Loan, a deposit of only 5% of the purchase price is required. First Home Loans are available from selected banks, building societies and credit unions, and are underwritten by Kāinga Ora.

• The maximum income you can earn but still receive Government assistance will be increased from 1 April 2021 from $85,000 to $95,000 for individuals and from $130,000 to $150,000 for two or more buyers.

• From 1 April, price caps on homes that can be purchased using Government assistance will also be lifted across the country to reflect rising house prices. The cap for properties located in Nelson and Tasman is being lifted to $525,00 for existing properties and $600,000 for new builds.

Further announcements are expected from the Government over the coming months as consultation occurs and the policy is rolled out.

Talk to us

For more information or professional advice on this topic please contact Clare North.

Disclaimer: The information contained in this publication is of a general nature and is not intended as legal advice. It is important that you seek legal advice that is specific to your circumstances.