Tax Shake-Up Targets Property Investors

In case you have been hiding under a rock for the past few months, there has been significant amount of talk and change as the Government attempts to cool the overheating residential properties market.   As far as the tax world goes, this has all happened at breakneck speed and any changes, bring with them risk.

There were already many provisions that tax the sale of land and some of the new tax rules are still to be finalised however the three main announcements are.

  1. Intention to remove interest deduction on residential properties from 1 Oct 2021.
  2. Increase to the bright-line test from 5 years to 10 years effective from 27 March 2021.
  3. Changes to the main home exemption from bright-line test

Each of these have the potential to have a major impact on anyone who currently owns, or is considering transacting in, a residential property. The announcements do not apply to commercial properties.

Intention to remove interest deduction on residential properties from 1 October 2021

A surprise move to change tax deductibility on rental properties has come as a shock to property investors. Owners of investment properties can no longer offset loan interest payments against rental income when calculating how much tax they have to pay. This will apply to all investment properties – for existing rentals purchased before March 27 2021 you can still claim interest on pre-existing loans as an expense against your residential property income, but it will gradually be phased out over the next five years.

 If you fall into any of these categories, the equations on your properties are now likely to have changed, so get in touch and we can run the numbers for you under the new tax rules. Once you have the right information, you can decide whether to make changes to your investment strategy or the way you use your properties.

Increase to the bright-line test from 5 years to 10 years effective from 27 March 2021

The bright line test means if you sell a residential property within a set period after purchasing it you will have to pay income tax on any profit made through the property increasing in value, unless an exemption applies (keep reading)

The bright line test is now extended from 5 years to 10 years. This applies to residential property acquired on or after 27 March 2021.  Now, if you acquire a second property and sell it within 10 years, you will be taxed on any gains. The timeframe for new builds is 5 years. This does not apply to your family home, unless you occupy it less than 50% of the year.   Talk to us about what the new tax rules will mean for your situation.

Changes to the main home exemption from bright-line test

For residential properties acquired on or after 27 March 2021, including new builds, the Government intends to introduce a ‘change-of-use’ rule. This will affect the way tax is calculated if the property were not used as the owner’s main home for more than 12 months, at a time within the applicable bright-line period.

Note: the bright line test applies to acquired property, not necessarily purchased and transfers between associated entities may trigger new acquisition dates.  A transfer of a holiday home, rental property or subdivision to a family trust may actually trigger the bright-line test.    Talk to us before arranging any property transfers.

Talk with  us.

As with all taxing provisions the key thing is to be on the front foot.  Have a chat with us to see how these changes impact your unique circumstances and as always before making any changes make sure you know and understand the future impact by discussing with us.  Planning in advance may save thousands and keep good records, particularly around timing is essential, particularly as these records may be required for up to ten years.   Contact us on