The Government has announced its plan to combat New Zealand’s buoyant housing market.
First home support
On Tuesday, the Prime Minister, Jacinda Ardern, and other key Ministers detailed the changes intended to cool the market by removing incentives for speculators while also aiming to increase the housing supply.
The key changes to note are the following:
Bright line test
The bright line test, under which property owners pay income tax on the capital gains made on the sale of any property other than a main home, has been expanded to ten years.
Properties acquired on or after 27 March 2021 (other than main homes or new builds) will be subject to the new test, meaning any capital gains will be taxed if the property is sold within the first ten years of ownership.
Properties acquired between 29 March 2018 and 27 March 2021, as well as new build investment properties, will continue to be subject to the previous five-year test.
If a main home is not used as a main home for more than a year it will now be subject to the test and, consequently, any capital gains made over the period of time that the property is not used as a main home will be taxable (assuming it is sold within 10 years of purchase).
Inherited property is not subject to the bright line test.
There are now new rules which mean the ability for property investors to offset their interest expenses against their rental income when calculating their tax has been removed.
Interest deductions on residential investment property acquired on or after 27 March 2021 will not be allowed from 1 October 2021. The amount that can be claimed on properties purchased prior to 27 March 2021 will also be reduced over the next four income years until interest deductibility is phased out entirely.
The Government has also made changes which will expand the availability of First Home Grants and First Home Loans. It has increased the maximum incomes for both individuals (now $95,000) and couples (now $150,000) to be eligible for the support, as well as the property caps on homes which can be purchased using first home assistance.
This will allow more first-home buyers to receive a First Home Grant of up to $5,000 for individuals or $10,000 for couples (these amounts are doubled for new builds). It will also increase the number of people eligible for First Home Loans, which only require a 5% deposit and are underwritten by Kāinga Ora.
Other changes that the Government has announced include a $3.8 billion housing acceleration fund, aimed at funding infrastructure around housing developments, as well as an additional $2 billion of funding for Kāinga Ora to undertake strategic land purchases.