The most recent of tax changes that could affect you, are you aware of the changes?

Residential Property Brightline Test

Changes to the Brightline test to came into effect on 1 July 2024.

The Brightline test period for residential property has been reduced from ten years to two years.

Residential properties sold after 1 July 2024 could be exposed to tax on any profit made on a sale if the property has been owned for less than two years, unless an exception applies. Exceptions for main homes, separation/relationship property transfers, some transfers to trusts, and receiving a property via an estate will remain in place.

Previously, residential properties purchased between 29 March 2018 and 27 March 2021 had a brightline period of five years and properties purchased after 27 March 2021 had a brightline period of ten years.  New build homes had a brightline period of five years.

The new brightline test will apply to all residential properties so properties currently with a five or ten year Brightline period will now be reduced to two years.  This means that residential properties purchased before 1 July 2022 and sold after 1 July 2024 will no longer be subject to the Brightline test because as at 1 July 2024 all sales of those properties will have occurred after at least two years.

If you are unsure of the changes to the Brightline rules please get in touch before you sell your property.

Residential Rental Interest Deductibility

Changes to the residential property interest deductibility to come into effect from 1 April 2024.

Interest deductibility will be reintroduced, with no changes for the 2024 financial year however from the 2025 financial year interest will be phased back in.

In 2021, the interest limitation was introduced to phase out the claim of interest on residential rental properties.  For the 2024 year, the interest claim will continue to be 50%.  For the 2025 year the interest claim will be 80% (previously this was to be 25%) and for the 2026 year onwards the interest claim will be 100% (previously this was to be 0%).  This is applicable to borrowings that existed before 27 March 2021, for borrowing after 27 March 2021, there will be no interest claim in the 2024 year however for the 2025 year the interest claim will be 80% and for the 2026 year onwards the interest claim will be 100%.

New builds with Code of Compliance issued after 27 March 2020 will continue to be able to claim 100% of the interest cost.

If you are unsure of the changes to the interest limitation rules please get in touch.