Kiwis left in the dark over interest deductibility rules

The new rules relating to mortgage interest deductibility, cunningly renamed the Interest Limitation Rules, are due to come into force on 1 October without a proper explanation of how they will even work in practice, National’s Shadow Treasurer Andrew Bayly says.

“Over the past year the only information shared with New Zealanders about how the mortgage interest deductibility rules would work in practice, other than the initial discussion document, has been a single press release issued by Revenue Minister Parker in June last year.

“Effectively, the Government is making a fundamental change to a decades-old policy so that owners cannot deduct interest expenses from their mortgages on residential properties.

“Labour likes to label this as closing a ‘tax loophole’, but it isn’t, and New Zealand’s tax professionals agree. This is a fundamental principle of tax policy, one that has existed for years until this Labour Government decided to change it.

“The new rules will apply from 1 October. The Government had promised to deliver the proposed legislation by then. But it hasn’t and as a consequence Kiwis haven’t seen the details.

“Taxpayers have a right to know how the new Interest Limitation rules will work in practice: for example, what is the definition of a ‘new build’ and who will be entitled to the concession to deduct interest and for how long; and whether build-to-rent properties will be captured under the interest deductibility rules,” Mr Bayly says.

National’s Housing spokesperson Nicola Willis says National has previously questioned the Minister on the bright-line rules that came into force earlier this year.

“New Zealanders want to know how the new rules will affect parents who purchase a property for their child to rent while at university, or what will happen to farm owners who rent out cottages on their property to employees.

“Kiwis want clarification from the Government, but they aren’t getting any.

“The Government shouldn’t be introducing fundamental changes to the tax system without going through a proper select committee process and giving the public the chance to have their say, before finalising the legislation.

“On that basis National is calling on the Government to delay the rules coming into effect from 1 October to 1 April 2022.

“We believe the process is flawed and we’re not alone, many tax experts agree. The proposed decisions are unworkable and pay no heed to decades-old tax principles.

“National is committed to reversing the changes when in Government,” Ms Willis says.