Recently, the Government announced a range of measures which in their view address the supply and demand for residential properties (in addition to measures already in force such as the ring-fencing of residential rental property losses). 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.
The three main announcements are:
For detailed information you can refer to the Government’s media statement and fact sheets on the bright-line test and interest deductions. The devil will be in the detail and we are expecting further information as these changes unfold.
While there is no need to panic, it is important you know how the changes could affect your cash flow. We summarise the key points below:
1) Increase in bright-line test from five years to 10 years effective from 27 March 2021
2) Changes to the main home exemption from bright-line test
3) Intention to remove interest deduction on residential properties
The impact in dollars and cents
How much of an existing investment property’s interest cost you can claim will start to diminish over the next four years.
Based on the scenario below, of $700,000 of investment property debt at 3% interest, we estimate the approximate annual cost to be between $735 – $1,023 in year one, and between $5,880 and $8,190 by the time it has been completely phased out.
|Income Year||% of interest cost you can claim||Cash impact 28% company tax rate||Cash impact 30% personal tax rate||Cash impact 33% personal/Trust tax rate||Cash impact 39% personal tax rate|
|April 2021 – March 2022 (transitional year)||1 April – 30 September, 100% 1 October – 31 March – 75%||$735||$787.50||$866.25||$1,023.75|
|April 2022 – March 2023||75%||$1,470||$1,575||$1,732.50||$2,047.50|
|April 2023 – March 2024||50%||$2,940||$3,150||$3,465||$4,095|
|April 2024 – March 2025||25%||$4,410||$4,725||$5,197.50||$6,142.50|
|April 2025 onwards||0%||$5,880||$6,300||$6,930||$8,190|
Please note this scenario doesn’t consider any losses that can be carried forward from previous years and doesn't include any measures to offset the impact, such as increasing rents. Also bear in mind that interest rates are likely to only trend in one direction – upwards!
If you are unsure how these changes affect you or would like some clarification, please contact one of the team today for more information. In the meantime, we will continue to keep you updated.
. . . . a statement that is very common in the Construction Industry.
In an IRD survey of around 500 tradespeople, a quarter said under-the-table jobs were common in the building and construction industry and that three out of six tradesman contacted for a quote provided a cash price, without being asked.
If you're in business, read on. The chance of an IRD audit is higher than you think.
There is no doubt in our mind that the IRD are devoting unprecedented levels of resourcing into ramping up their audit activity, particularly in relation to the cash economy. Other key areas of focus include travel, vehicles, and repairs and maintenance. We're also seeing a new interest in areas that have previously been ignored by the Department.
The Inland Revenue Department (IRD) has sent out a media release advising they have been receiving reports of a phishing scam from a significant number of their customers from around New Zealand. We know of at least three of our clients that have been targeted.
Scam phone calls are being made to both mobile and landlines, and a voicemail being left if the phone call is not answered.
The caller advises they are from the IRD and report to the customer one of several scenarios designed to alarm the customer into returning the phone call and making payment to the IRD as soon as possible. Some calls threaten serious repercussions, such as arrest, if payment is not made to the IRD within 30 minutes.