The government made a shock announcement in March to remove a longstanding tax “loophole” that let property investors reduce tax bills by deducting mortgage interest payments against their rental income.
At the time, it said the changes would not include new builds.
Consultation documents out today detail the proposals to stop interest deductions being claimed for residential investment properties.
This includes how the new build exemption might work in terms of the interest claim limitations and the application of a five-year brightline capital gains test, rather than the ten-year test for other residences.
The proposal document suggests conversions from commercial to residential are counted as new builds and asks whether heritage buildings being substantially altered should count as new builds.
There may also be exemptions for subsequent purchasers of new builds.
As well as excluding the family home, the proposal is to exclude non-residential properties, employee accommodation, farmland and care facilities.
It would also not include interest related to the main home, for example, if an owner lived with their tenant.
Community housing providers which are charities would be exempt as would state home builder Kāinga Ora.
The consultation closes on July 12. The discussion document can be viewed here.
The initial measures were part of a package of attempts by the government to cool the housing market, but Auckland realtor Barfoot & Thompson said earlier this month the market was unfazed.
Managing director Peter Thompson said April's positive momentum had carried into May, reflected in sales numbers at their highest level for the month in four years.
The median price across the realtor's 1,197 confirmed sales was $1.07 million, 2.2% ahead of the prior month and 17.5% higher than May last year.