Bright line and interest deductions

Bright line and interest deductions

(1) Bright-line test timeframe to double from five years to ten years. In a nutshell, the current bright-line rules currently provide that a sale of residential property is taxable if sold within five years of acquisition and the property is not your main home.  (Other exemptions can apply).  The bright-line test will move to 10 years for residential property acquired on or after 27 March 2021. Property acquired before 27 March 2021 (and after 29 March 2018) remains subject to the five-year bright-line test.  “New builds”, will continue to be subject to the five-year bright-line test.

(2) No deductions for interest on residential property held for newly purchased investment properties.  For residential property acquired on or after 27 March 2021, from 1 October 2021 no deduction will be available for interest on loans used to acquire them. The premise is that tax should not provide a shelter to reduce the cost of ownership for investors.

(3) Progressive 25% reduction each year on deductions for interest on residential investment purchased pre-March 27th 2021 (starting Oct 21) For residential property acquired before 27 March 2021 interest on loans remains deductible initially, however on a reducing basis over the next four years. This will be a progressive 25% reduction each year, with a final outcome of no deductions (for any residential property acquired at any time) for interest from the 2025/26 and later income years.“New builds” are excluded from the above ruling.  With respect to deductibility (or non-deductibility of interest), this appears to have been modelled on a similar change presented in the UK.

(4) New build exemption The exemption applies to ‘new builds’. This is defined as properties that received the final code of compliance (CCC) on or after March 27, 2020, and the exemption applies to both the initial purchaser of the new build and any subsequent owner within the 20-year period.   The ‘new build’ definition includes prefabricated houses and the conversion of existing dwellings into multiples where a final CCC has been obtained post march 27, 2020.