08 Oct Residential Investment Property Owners – Be Aware
Interest deductibility restrictions from 1 October 2021
For residential property acquired on or after 27 March 2021, interest on home loans will not be able to be offset against rental income from 1st October 2021. For properties acquired before 27 March 2021 the ability to offset interest will be phased out over 4 years from 1 October 2021.
Some rental properties are excluded from the new rules such as houses on farmland, retirement villages and new builds. It is important to note that the definition of a new build in this context includes modular and relocatable homes.
New bright-line test rules (capital gains tax on property)
The 10-year bright-line test only applies to properties acquired on or afer 27 March 2021. If a property falls under the definition of a new build it will instead be subject to a 5-year bright-line test.
Example: Bright-line period
Amber acquires title to bare residential land on 1 May 2021. Amber adds a new build to the land, which receives its CCC on 5 June 2022. Amber rents the new build out, and then sells it on 1 October 2027.
The bright-line period begins on 1 May 2021 when title was issued to Amber, not from the date the new build received its CCC. Therefore, Amber will not be taxed on the gains when she sells the land on 1 October 2027, because that is more than five years after title for the land is transferred to Amber.
Property transactions are highly factual and rarely straight forward.
If you are thinking about buying or selling a residential investment property, that is not your own home, please get in touch.