Interest tax deductibility rules

Jon Harrey asks:
(updated on Friday, April 01st 2022)

We signed up to purchase an existing property just a few days before the government announced its proposed changes to the brightline and interest tax deductibility rules applicable from 27 March 2021. The property was settled in April 2021 at which time we drew down the mortgage that had been approved by the Bank in mid March.

What is our position with regard to tax deductibility of interest. Are we subject to the phase down through to 2025 or does deductibility cease after 30 September 2021?

Our Experts Answer:

There is a short answer to this. You are subject to the phase out of interest deductions through until 31 March 2025. On the basis you entered into a binding contract to buy this property before 27 March 2021, the fact that you settle after this date and drew down the loan after this date, does not mean you are then subject to the automatic denial of interest deductions from 1 October 2021.

The loan is treated as effectively relating to an existing rental property, allowing you to claim interest deductions on a phased out basis over the next three or so years.

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