The Money Empire team have decided to weigh in on the latest update, and how this will impact you as an investor, tenant, or first home buyer.
The latest housing policy update from the Government was announced Tues 23 March 2021, and it appears that there has been a lot of people panicking, concerned, or under the idea that this is the most beneficial to all.
We wanted to summarise our thoughts for everyone. Interested? Keep reading.
To summarise in simple terms:
Right now, it looks like most of what’s been put forward is a proposal! This means the Government has until October 2021 to review and refine the strategy and overarching theme, which should be a huge relief. Hopefully, by then the Labour Government can strengthen their housing policy offering and really extend a hand to support the first home buyers out there – we know for a fact it is hard for this group at the moment as it is!
This new bright-line test rule has been extended from five to ten years. If you’re not sure what this means, let us give you the lowdown. This rule was first brought into action by the National government in 2015 as part of the income tax rules. The rule was applied to any person who, between 1 Oct 2015 and 28 March 2018, sold a residential property that wasn’t their main home within two years of purchasing. This process would be phased in over the next four years for the existing properties impacted.
This test treats the financial gains, if any, on the residential property as income tax, which of course, is taxed. This means that the income taxed, the ‘profit’, is essentially the capital gain. We found a really handy flowchart from RNZ/Inland Revenue.
It appears that the main changes from the latest release have been to discourage investors from buying multiple properties and selling for a decent profit. However, new builds are exempt from any of the above bright-line test taxes and deductible taxes, resulting in investors buying new builds. This act will only drive up the prices and demand even further, only pushing first home buyers into an already competitive corner.
Our team have worked out that the average Kiwi that owns an investment property over the next four years will pay up to $6,000 each year on income tax due to the non-deductibility of mortgage interest. All this means is landlords will start raising rent by $28 per week every year to cover this shortfall in four years time! Not ideal for people who are already struggling, or First Home Buyers to get that ever-important deposit together.
There’s quite a bit to unpack here, but again we say: it’s a proposal! The bright-line test is still being implemented this Saturday 27th March, however, we still have some freedom to figure out what to do next.
It’s always important to not take everything in the media as gospel. Bad news sells! .
If any of the above confuses you, you’re not sure what to do, or you simply want to have a chat to one of our expert advisers – get in touch with us now. Let’s chat through your options before making any final decisions!