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April 2021 Newsletter

Welcome to a new tax year and there have been some major legislative changes that will impact on many taxpayers for the coming 2022 tax year.

The largest changes will affect residential property investors, with the bright-line test timeframe being extended to 10 years if the property was purchased after 27 March 2021 unless it is a new build. The second tranche of the changes was to limit the ability of the residential property investor to claim interest costs incurred for loans against the property from 1 October 2021. Purchases of property after 27 March 2021 will not be able to claim interest deductions from 1 October 2021, while existing property owners at 27 March 2021 will have their interest claims limited to 75% of the cost incurred from the same date until 31 March 2023. Interest claims will then be reduced to 50% in the 2024 tax year, 25% in the 2025 tax year before ceasing completely from 1 April 2025.

There will be a change in personal tax rates for the 2022 year with the introduction of a 39% marginal rate on incomes over $180,000. Inland Revenue has already issued a warning that any activity taken with the primary intent of reducing a person’s exposure to the higher 39% marginal rate is likely to be viewed as tax avoidance.

Inland Revenue has also advised that they are actively conducting two industry education campaigns. Firstly, they will be focused on the construction industry, especially to support taxpayer’s understanding of their tax obligations if undertaking cash transactions. Secondly, the real estate sector will receive attention, particularly in relation to claiming expenses, with a special focus on supporting claims for the business portion of mixed business/private expenses.

If any of these changes affect you, please don’t hesitate to get in touch with our office if you have any queries on the impact these changes might have on your personal tax situation.