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Key Facts and Updates About New Zealand Tax Returns for 2025

Giles — Tue, 27 May 2025 05:04:27 +0000

As we enter the 2025 tax season, New Zealand businesses face a continuing challenge: the need to remain compliant while also identifying opportunities for growth. Whether you’re a startup founder, an owner of a small to medium-sized enterprise (SME), or a director overseeing complex financial matters, simply submitting your tax return on time is no longer enough. This year, effective tax planning could offer your business a vital edge.

The 2025 tax landscape introduces key updates that warrant close attention. Being aware of these changes not only ensures compliance but could also result in valuable tax savings.

Let’s break down what you need to know about filing your 2025 New Zealand tax return. Also, a few smart tips for both individuals and businesses to stay ahead.

Key Insights on Tax Returns in New Zealand

In New Zealand, the financial year starts from 1 April to 31 March. So, the 2025 tax return covers the period from 1 April 2024 to 31 March 2025. Everything must be reported in New Zealand dollars, including taxable income and deductions. Filing an annual income tax return is mandatory, even if you regularly submit GST returns, as income tax is a separate duty.

Moreover, if you file late, you could face penalties and interest charges and even lose the chance for an extension if you’re using a tax agent. But don’t worry! If you realise you’ve missed something after submitting your return, you can always amend it to make sure everything’s accurate.

What’s New for New Zealand Tax Returns 2025?

Tax Year and Filing Deadlines NZ

If you’re filing your own individual tax return for the year ending March 31, 2025, it’s due by July 7, 2025.
If you’re using a chartered accountant with an extension of time, the deadline is March 31, 2026.
For companies with a balance date of March 31, tax returns are due by July 7, 2025, if filing yourself.
If using a tax agent with an extension of time, the deadline is March 31, 2026.
Company tax liabilities need to be paid by February 7, 2026, if you file yourself or work with a tax agent without an extension.
If you’re using a tax agent with an extension of time, the payment is due by April 7, 2026.

Individual Tax Returns New Zealand

You need to file a tax return if you earned any income from running a business, being self-employed, or doing contract work. You also must file one if you made over $200 in untaxed income in New Zealand. This includes capital from overseas or rental properties.
The IRD will get in touch with you to automatically analyse your tax return if your only sources of income are dividends, interest, and salaries generated in New Zealand.
Taxable income can include things like your pay from a job, interest from savings, dividends from shares, money earned from your business, and income from renting out property.
For example, you can claim a tax credit for taxes withheld before payment, including PAYE deductions from your employer, Resident Withholding Tax (RWT), and Imputation Credits on dividend and interest certificates.
A refundable tax credit of up to $520, the Independent Earner Tax Credit may be available to anyone who makes between $24,000 and $70,000 annually.
As long as business expenses contribute to the creation of taxable income, they may be deducted from business income on a tax return. Expenses that involve “personal elements” are not deductible. Additionally, you are unable to deduct costs related to receiving a PAYE-taxed pay or earnings.

Company Tax Returns New Zealand

Whether or not a business was trading or turning a profit, it still has to file a corporation tax return.
There will be a late filing penalty for tax returns that are filed after the deadline. If you also delay paying your taxes, you may face extra charges for late payment and interest on the unpaid amount.
Company tax returns help work out how much tax a business needs to pay for the year. In New Zealand, the company tax rate is currently 28%.
If your company makes a loss during the year, the tax return shows how much of that loss can be carried forward. You can then use it to reduce your tax when you make a profit later.
Trading profits, interest income, and investment income are all considered taxable income.
You can sometimes receive a tax credit that helps lower your bill. For example, if your company hires and trains new apprentices under an approved scheme, you may qualify to claim a tax credit.
Business expenses can be deducted from company income on a tax return, provided they are incurred solely and exclusively for the company.

Strategic Tips for Navigating Common Business Challenges with the IRD

Understanding how the IRD works to file your tax return correctly is important. Here are some key things to remember:

The IRD can check your tax returns to make sure you’re following the rules.
If you don’t follow tax laws, the IRD can charge fines and penalties.
The IRD offers tax tables and calculators to help you work out how much tax you need to pay.
Employers must take PAYE tax from employees’ pay and send it to the IRD.
If you are unable to pay your full tax bill, the IRD may provide you with a payment plan option.
If the IRD finds any mistakes or missing info in your tax return, they can send you an updated tax notice.
Employers must deduct Pay As You Earn (PAYE) tax from employees’ salaries and wages.
The deducted PAYE tax must be remitted to the Inland Revenue Department (IRD).
The IRD offers payment plans for taxpayers who are unable to pay their tax debt in full.
The IRD can issue tax assessments if errors or omissions are found in tax returns.
Some companies provide tax pooling services to simplify how businesses handle their tax payments.
Businesses must keep records like receipts, bank statements, invoices, and employee pay details for at least 7 years. Getting help from a tax agent or Chartered accountant can also help avoid mistakes and penalties.

How can Geca Chartered Accountants help with Business Tax Returns?

Running a successful business isn’t just about hard work – it’s about having the right strategy and support, especially when it comes to finances and taxes. As your trusted advisor, GECA is here to take the stress out of preparing and filing your business tax returns and financial statements. We ensure you stay fully compliant with all tax regulations while also using our expertise to help you legally and efficiently minimise your tax liability. In essence, we offer peace of mind, ensuring that your business is on the right track with advice and services that support your long-term success.

Save time and money with our efficient and affordable services, designed specifically for small business owners. We provide clear, actionable advice to help you seamlessly manage your tax returns and financial accounts. Book your FREE Strategic Discussion today to see how our expertise can support your business’s growth and peace of mind.

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Upcoming 2024 Tax Changes

Giles — Tue, 14 May 2024 22:53:42 +0000

Upcoming Changes to New Zealand’s 2024 Tax Laws

With the Budget almost upon us, following are some of the more important tax changes we are expecting to be confirmed with Budget related legislation.

Income Tax Threshold Changes

The new government intends to change the tax rate thresholds from 1 July 2024. The proposed threshold adjustments are as follows:

In conjunction with the threshold change, the eligibility for the Independent Tax Earner Credit (IETC) is also said to expand to $70,000 (up from $48,000). IETC is the tax credit you’re eligible for if you earn between $24,000 and $48,000 per annum; you are not claiming Working for Families Tax Credits; your income is not an income-tested benefit; or you don’t receive New Zealand Superannuation.

Trust Tax Rate Increase

The last government introduced a Tax Bill on 23 May 2021 as part of their budget. Included in the Bill was a proposed increase in the Trust Tax rate to 39% (up from 33%). The Tax Bill expired and was not passed into effect prior to the election, the now Finance Minister Nicola Willis however confirmed on 12 February 2024 that the Trust Tax rate will in fact increase to 39% from 1 April 2024.

On 11 March 2024 there was an additional announcement by Nicola Willis in which she indicated that the Government is also proposing that trusts that earn less than $10,000 per annum (after deductible expenses) would still be taxed at 33%.

Inland Revenue released a high-level guidance document on 2 February 2024 on how it may view some taxpayer transactions and structural changes regarding the increase in the trustee tax rate. We will work with our clients where applicable to ensure that any changes to your tax planning or business structures are within the confines of the guidance provided by Inland Revenue.

Interest Deductibility and Bright-line test

The last Government took a hardline approach to property investors by changing the rules around the ability to deduct interest on the loans on rental properties, as well as changing the Bright-line test first to five (5) and then to ten (10) years (up from two).

Interest deductibility for rental properties will be restored on a phased-in approach over the next two years as follows:

80% deductible in the 2024/2025 income year
100% deductible from the 2025/2026 income year (full deductibility from 1 April 2025)

The Bright-line test for investment properties will be reduced to two (2) years (from ten (10) years) with retrospective effect from 1 July 2024 which in effect means that investment property acquired before July 2022 should no longer be subject to the Bright-line test at sale.

Speak with us if you are unsure if the Bright-line test will still apply to you or not.

Commercial Building Depreciation

Due to the impacts of COVID-19, the previous government announced in March 2020 a reintroduction of tax depreciation on commercial buildings for the 2020/2021 tax year, whilst it was originally removed in May 2010. The new government has indicated that it will remove the ability to claim commercial buildings depreciation, though we are uncertain when this will take effect, we expect it will take effect from 1 April 2024.

As always, you can contact your GECA Advisor anytime on 0800 758 766, if you would like to discuss about the how the changes mentioned above would impact you.

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What is the ‘Netflix Tax’?

Giles — Mon, 22 Apr 2024 00:11:43 +0000

What is the ‘Netflix Tax’

The landscape of taxation is ever-evolving, and New Zealand is no exception. With the rise of digital services and the global marketplace, the New Zealand government has implemented GST on remote services supplied to its residents by overseas businesses. It’s commonly known as the ‘Netflix Tax’.

Remote services are a service that, at the time of the performance of the service, has no necessary connection between (a) the place where the service is physically performed; and (b) the location of the recipient of the services”.

Some of the examples are:

supplies of digital content, such as e-books, movies, TV shows, music and online
newspaper subscriptions
online supplies of games, apps, software and software maintenance
webinars or distance learning courses
insurance services
gambling services
website design or publishing services
legal, accounting or consultancy services

How does it impact your business?

The purpose of the legislation is to affect consumers rather than businesses. It stipulates that international suppliers should consider a New Zealand resident to be unregistered for GST unless they have been given a GST number by the customer. This means a business supplying remote services to a New Zealand GST-registered business should not be charging them GST.

If your business is registered for GST, you must provide the supplier with your GST or IRD number to ensure you’re not inadvertently charged GST. In other words, this means you should be paying less to the oversea supplier as you’re not getting charged the extra 15%.

If a non-resident supplier inadvertently treats a GST-registered business as an individual consumer and charges the business GST, there are two solutions:

If the value is over $1,000:

The GST-registered recipient should seek a refund from the non-resident supplier;
They cannot claim the expense in their GST return.

If the value is NZ$1,000 (including GST) or less, based on the value of the supply in New Zealand dollars at the time of supply:

The supplier can choose to provide a tax invoice to the NZ business rather than issue a refund;
The supplier must provide a full tax invoice, even if the payment for the supply (including GST) is less than $50. The new “Taxable Supply Information” rules don’t apply;
Only with the full tax invoice, can the NZ business make an expense claim in their GST returns to get the GST back.

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Year End Tax Tips 2024

Giles — Thu, 07 Mar 2024 09:46:08 +0000

Year End Tax Tips

By Sheral Reddy, Associate Director at GECA Chartered Accountants. If you need help with Tax advice including end of financial year preparation, then Sheral and the GECA team can help.

The end of financial year deadline:

As the end of the financial year approaches, it always pays to spend a little extra time examining your financial records and considering ways to increase your after-tax income.

There is a high chance that you will find a couple of extra savings from 2022-23, which can add up to reduce your tax bill by a significant amount. It is also a good time of year to reflect on your financial position, and think about tax minimisation strategies and goals for 2023-24.

Top tax tips for preparing for the end of financial year:

Bonuses and holiday pay

It is possible to claim amounts payable to your employees as a deduction for the current financial year, so long as the full amount is paid to the employee within 63 days of the balance date. Amounts that are paid more than 63 days from the balance date can only be claimed in the following financial year.

Discount reserve

You are able to claim a deduction for a discount reserve. For example, a discount for speedy payments, if your debtors are traditionally entitled to this discount. In the years following on from the first year that you are allowed, you can claim a discount reserve deduction, adjustments will be made to maintain the discount level at a consistent level.

Fixed Asset Schedules

We suggest reviewing your fixed asset registers and assess whether any assets are no longer in use by the business, not working or stolen or disposed of during the year. By writing off these assets (only if they meet the write off criteria) a deduction will be allowed with respect to those assets.

IRD Returns and Workings

If you are filing your own GST and PAYE returns during the financial year. Please ensure you keep a copy of the returns filed with the IRD together with your workings as to how the figures were calculated and ensure copies of these returns are forwarded to us when providing us with the end of year information. Also, ensure all your GST and PAYE returns have been filed with the IRD for that financial year.

Pre-pay expenses

By pre-paying for tax deductible expenses before March 31, you will be able to minimise your tax bill. Some categories of business expenses can be pre-paid without any limitations, meaning that you can claim as much as you like. Examples include stationery, vehicle registration, accounting and auditing fees and postal charges. Most other expense categories have caps that limit the amount that can be claimed in a year.

Record Keeping

Ensure that you have all the bank, credit card and loan statements for the financial year including any RWT Interest Certificates or Dividend Statements. If you have purchased any fixed assets during the year or have had major repairs and maintenance expenses, please ensure to keep copies of those invoices. Please note, the threshold for capitalising fixed assets now is $1,000. A list of accounts receivable and accounts payable should also be kept if applicable.

Split business income

In some circumstances, it may be possible to minimise your tax liability by redistributing the flow of income from your business. For example, if your partner is a low-income earner, it may be advisable for you to split the business income with them. It may also be possible for you to redirect some of your income towards your children.

However, if your family members are employed in your business as wage earners, you should be aware that Inland Revenue may elect to make tax adjustments if they consider the remuneration to be excessive.

Trading stock valuation

Trading stock must be valued using a cost valuation method unless the market selling value is lower than the cost. Therefore, in order to lower the value of your stock before the end of the financial year, you should either physically dispose of it or sell it at market price (if the market price is lower than cost).

Work In Progress (WIP)

It is recommended that on 31 March you assess all the jobs in progress. Make a list of these jobs and add up the costs associated with these jobs (exclusive of GST). The costs will include any stock items used and employee/contractor time on these jobs. These costs are treated as closing Work In Progress as at 31 March and are costs yet to be billed to the customers. These won’t be deductible as an expense at the end of the financial year.

Write off bad debts

Businesses with outstanding amounts owed, no matter the size, that are unlikely to be recovered in full should consider writing these off as bad debts. Bad debts can be used as a tax deduction, effectively reducing your taxable income for the relevant year.

In order for a debt to be considered bad, you must have formally written the debt off in your accounts, and be able to prove to Inland Revenue that you have taken reasonable steps to recover the amount.

Got a tricky tax problem, call us now on 0800 758 766 to see what we can do to assist. Alternatively, you can email sheral@geca.co.nz.

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A Comprehensive Guide to Purchasing a Rental Property in a Trust: Maximizing Tax Efficiency

Giles — Fri, 02 Jun 2023 07:26:28 +0000

Introduction:

Investing in rental properties can be a lucrative venture, providing a stable source of income and potential long-term wealth accumulation. When considering the purchase of a rental property, it’s important to carefully evaluate the most suitable ownership structure to optimize tax efficiency. This blog aims to provide guidance for individuals with incomes exceeding $70,000 who are planning to buy a property within a trust and subsequently rent it out.

Choosing the Right Ownership Structure:

If your income surpasses $70,000, it is advisable to purchase the rental property under either a trust or a company to benefit from lower tax rates. If you already have a trust in place, purchasing the property under the Trust account is recommended.

Tax Rates and Structure Comparison:

1. Company Structure:

Companies typically face a tax rate of 28%, which appears advantageous compared to the trust tax rate of 33%.
However, it’s crucial to consider potential scenarios where the company might need to be wound up or equity needs to be drawn down. In such cases, a dividend must be declared, attracting an additional 5% Dividend Withholding tax (DWT) payable to the Inland Revenue.
Consequently, the overall tax liability ends up being 33% in the end, and the 5% DWT can be viewed as a timing difference.
It’s important to note that if dividends are declared to the shareholders, an extra 6% tax is levied on individuals earning over $180,000;
There will be an extra 6% imposed on dividends paid from 1 April 2024 to Trusts if the Trusts are shareholders of the company due to the changes in the Trust tax rate. Thus, a total of 39% tax (28% Imputation credits, 5% DWT, and 6% extra tax paid personally or by the Trust is the taxable profit is retained in the Trust) would be incurred.

2. Trust Structure:

Opting for a Trust structure entails a flat tax rate of 33% (39% from 1 April 2024) on rental income.
Additionally, it offers the flexibility to make distributions to beneficiaries, allowing the utilization of their marginal tax rates, provided they are over 16 years old. Minor beneficiaries, on the other hand, are subject to a flat tax rate of 33% or 39% from 1 April 2024. Please note, we are yet to see if the new Trust tax rate is implemented if a new government is elected in October this year!
Any profits generated by the rental property can be retained within the Trust and taxed at 33% or 39% from 1 April 2024.
Trusts also offer greater flexibility for drawing down equity, subject to the agreement of the trustees and ensuring that all major transactions are properly documented and executed in the best interest of the beneficiaries.
Trusts are great for asset protection and wealth or succession planning.

The Advantages of a Trust Structure:

Considering the tax implications and flexibility offered, a Trust structure emerges as the most advantageous option for tax savings in this scenario. By purchasing the rental property within a Trust, you can benefit from the following advantages:

Utilizing Marginal Tax Rates: The ability to distribute income to beneficiaries allows for potential tax optimization by utilizing their respective marginal tax rates. Whereas, under a company structure, any dividends declared are only to the shareholders and any distribution has to be in proportion to the shareholding of the company.
Flexibility in Equity Drawdown: Trusts offer greater flexibility in accessing equity, subject to the agreement of trustees and adherence to fiduciary responsibilities. Whereas, as mentioned above, a company will require a declaration of dividends if equity needs to be drawn down.

Conclusion:

As you embark on the journey of purchasing a rental property, it’s essential to consider the long-term tax implications and choose an ownership structure that aligns with your financial goals.

Get in touch today!

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Changes in tax invoices for 2023: what you need to know

Giles — Sat, 22 Apr 2023 00:07:34 +0000

GST (Goods and Service Tax) is a tax charged on most goods and services in New Zealand and is collected by businesses on behalf of the IRD from its consumers. Businesses that are registered for GST are required to issue tax invoices and keep records of their sales and purchases.

However, issuing invoices and recordkeeping can be daunting and time-consuming for businesses – so much so that the IRD has modernised the GST rules to help business owners. These rules have been in effect since the 1st of April 2023.These changes raise important questions for Kiwi business owners, and it’s important to know what they mean for you and your business.

In this article we’re going to cover a number of key changes under the new rules, how they affect purchasing second-hand goods, and how they can be applied to business owners.

What are the new rules?

The requirement for GST invoicing and recordkeeping has been replaced by a more general requirement – providing (and keeping) taxable supply information. The advantage of the new rules gives business owners more flexibility, with the convenience of e-invoicing.

You can save time and money by reducing your admin time (as long as you meet the minimum information requirements set by the IRD!).

We’ve included some key changes you need to know:

New terms changes

Tax invoices are now known as ‘taxable supply information’
Debit notes or credit notes are now known as ‘supply correction information’
Buyer-created tax invoices are now known as ‘buyer-created taxable supply information’

Taxable Supply Information (TSI)

TSI shows what was sold, who sold it, who bought it, and how much GST was charged.

This information can be provided and kept in various ways, such as through accounting software (Xero) or an electronic exchange between your software and your customer’s software (PEPPOL e-invoicing).

These TSI formatting changes are not mandatory as long as the correct information is supplied to the IRD. You can stick with the old rules and receive tax invoices as usual, as the new rules are designed to be less restrictive and more adaptable to different invoicing partners.

It’s important to note the TSI information required depends on the value of the transaction.For instance, you

don’t need to issue a TSI if the customer is not GST registered, or the GST inclusive amount is under $200 (the low-value threshold has increased from $50 to $200). If the amount is below $200 and you’re using Xero, the information provided within Xero is sufficient.

To learn more check out the IRD’s page on how taxable supply information for GST work.

A quick rundown of these changes is outlined below (source – Deloitte).

How do these changes impact my business?

As a business owner, it’s important to be aware of the changes and understand how they apply to your business. A good starting point is to review your current invoicing and recordkeeping processes and assess whether you need to make any changes or adjustments.

Make sure you keep your customers and suppliers updated on how you will provide and keep taxable supply information. You may need to update your contracts or terms and conditions to reflect these new rules.

Lastly, you may want to take advantage of e-invoicing – it’s a great opportunity to streamline your business operations, receive payments faster and ultimately improve your cash flow. If you’d like to read more on this topic, we have an article on an introduction to e-invoicing for business owners.

Purchasing second-hand goods

To claim GST back on second-hand goods purchased, you need to record the following:

Seller’s name and trade name
Seller’s address
The date on which the goods were supplied
Description of the goods
Quantity or volume of the goods
Total amount payable

Invoices are not normally provided on platforms such as Facebook Marketplace or TradeMe. This can make the invoicing and recordkeeping rules tricky, so be sure to at least gather this information.

Keep in mind GST needs to be managed differently when purchasing second-hand goods from a person or a business that you have an association with. You can learn more about this on our blog: GST on second-hand goods.

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Year End Tax Tips 2023

Giles — Fri, 03 Mar 2023 12:58:13 +0000

Year End Tax Tips

By Sheral Reddy, Associate Director at GECA Chartered Accountants. If you need help with Tax advice including end of financial year preparation, then Sheral and the GECA team can help.

The end of financial year deadline:

As the end of the financial year approaches, it always pays to spend a little extra time examining your financial records and considering ways to increase your after-tax income.

There is a high chance that you will find a couple of extra savings from 2021-22, which can add up to reduce your tax bill by a significant amount. It is also a good time of year to reflect on your financial position, and think about tax minimisation strategies and goals for 2022-23.

Top tax tips for preparing for the end of financial year:

Bonuses and holiday pay

Discount reserve

Fixed Asset Schedules

IRD Returns and Workings

Pre-pay expenses

Record Keeping

Split business income

Trading stock valuation

Work In Progress (WIP)

Write off bad debts

Got a tricky tax problem, call us now on 0800 758 766 to see what we can do to assist. Alternatively, you can email sheral@geca.co.nz.

The post Year End Tax Tips 2023 appeared first on GECA Chartered Accountants.

Property Interest Limitation Rules

Giles — Tue, 31 May 2022 01:47:47 +0000

This post is by Sheral Reddy, an chartered accountant and tax specialist at GECA Chartered Accountants. Call Sheral now for tax advice on your circumstances.

Following from our newsletter from April last year, just a reminder to our clients that the interest deductions are being phased out for properties acquired before 27 March 2021 as follows:

As the 2022 financial year is a transitional year, please bear with us if we require more detailed copies of the loan statements for the whole year instead of just a summarised Loan Summary from the banks.

Please contact your GECA Advisor on 0800 758 766, if you would like to discuss about the how the Property Interest Limitation Rules mentioned above would impact you. We would be happy to assist you with reviewing the structure of your residential rental properties and the preparation of your rental accounts or income tax returns.

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Small Business Cashflow Scheme Loan

Giles — Thu, 05 May 2022 01:28:43 +0000

This post is by Sheral Reddy, an chartered accountant and tax specialist at GECA Chartered Accountants. Call Sheral now for tax advice on your circumstances.

Small Business Cashflow Scheme Loan

The small business cashflow scheme was introduced in May 2020 to assist small to medium businesses who have been impacted by the Covid-19 pandemic.

On 21 March 2022, the loan amount has been increased to $20,000 from $10,000 plus $1,800 per full-time equivalent employee (up to 50 employees).

Please refer to the link below for eligibility criteria for applying for the small business cashflow loans or for a top up loan:

https://www.ird.govt.nz/covid-19/business-and-organisations/sbcs/maximum-loan-size

Although the loans are for a term of 5 years (60 months) from the date the loan is drawn down. The first two years are still interest free and repayments are not compulsory for the first two years.

However, a lot of businesses are now receiving notifications from IRD if their two-year anniversary date is up or nearly here. Please check your MYIR correspondences from the Inland Revenue relating to the Small Business Cashflow Repayment Plan that outlines the monthly minimum repayments required.

Please contact your GECA advisor now on 0800 758 766 if you don’t have access to your MYIR and require us to check when your repayment start dates are for the Small Business Cashflow loan.

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TAX CHANGES FOR RESIDENTIAL RENTAL PROPERTIES

Giles — Tue, 13 Apr 2021 22:05:17 +0000

This post is by Sheral Reddy, an chartered accountant and tax specialist at GECA Chartered Accountants. Call Sheral now for tax advice on your circumstances.

On 23^rd of March 2021, the government announced various policies which will impact the property owners and investors significantly which was passed on 24 March and received the royal assent on 30 March 2021. The policies have been aimed at the housing market as result of the soaring house prices and the changes are to make the property market more accessible to the first home buyers.

The changes announced are as follows:

Bright-line Test Extension to 10 Years
- The bright-line test taxes capital gain from the sale of residential properties if they are sold within a set time frame.
- Any properties acquired on or after 27 March 2021, except for new builds will be subject to the bright-line period of 10 years (previously 5 years)
- If the property is sold within the 10-year period after acquisition, the owners and investors will be required to pay income tax on any profit from the sale of the property.
- Any ‘new builds’ will still be subject to the bright-line period but only for 5 years. The definition of a ‘new build’ is still to be clarified but includes properties that are acquired within a year of receiving their code of compliance certificate.
- Inherited Properties remain exempt from the bright-line test.
- Generally, for tax purposes the date of acquisition is when the date that a binding sale and purchase agreement is entered into. However, under the Bright-line tests, the commencement date is when the legal title is acquired and the end date is when the binding sale and purchase agreement to sell is signed.
- In cases where there is no title obtained once a sale and purchase agreement is signed, then the bright-line test will commence on the date the sale and purchase agreement was signed. This usually applies where the land was sold later before the title to the land was issued to the vendor in property transactions such as the off-the plan purchases.

Changes to the ‘Main Home’ Exemption
- In the past any properties used as the main home was exempt from the bright-line test. You had to have lived in the property for more than 50% of the time of total ownership and more than 50% of the total floor area of the house had to be used as the main home. Having a ‘main home’ exemption in the past meant that there was no tax on gain on sale of your main home.
- However, the ‘main home’ exemption rules for properties purchased from 27 March 2021 and onwards have now changed. The gain on sale relating to the period of ownership where the property was not used as a main home will now be taxable (apportionment rules will apply). For example, if the property was rented out for two years and lived in it for the six year before being sold. The gain on sale will be taxable for the 2 years it was rented out of the total 8 years. This also applies to and includes new builds.

Interest Deductibility Rule changes on Residential Properties
- In the past Interest on mortgages relating to the residential rental properties have been deductible as an expense against the rental income for tax purposes. This allowed property owners and investors to reduce their tax liability on the rental property. The new policies will not affect property developers or loans for non-housing business purposes. However, the following changes will take effect as follows:
  - Properties acquired on or after 27 March 2021 will not be allowed to claim interest expenses on the mortgages against the rental income incurred after 1 October 2021
  - For existing rental properties purchased before 27 March 2021, will have their interest deductions phased out over four years as shown in the example below:

In Summary

Please note, the new legislation does not affect the ring-fencing of rental losses. Any rental losses will continue to be ring-fenced and be offset against any future rental income from residential rental activities.

The changes mentioned above will have a significant impact on property investors and owners. The deductibility rules on interest on mortgage will impact the tax liabilities of investors going forward. Especially with the new tax rate of 39% for individuals earning $180,000 and over. We suggest, making an appointment with us to review the structure of your investment properties as soon as possible.

Please contact your GECA Advisor on 0800 758 766, if you would like to discuss about the how the new tax changes mentioned above would impact you. We would be happy to assist you with reviewing the structure of your residential rental properties and the preparation of your rental accounts or income tax returns.

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