Home > Updates > New Build-to-rent exemption from interest limitation rules
The Government has announced a new exemption from the interest limitation rules for large scale Build-to-Rent land, with the draft legislation being included in the omnibus tax bill released on 30 August 2022.
Build-to-rent properties provide long-term rental accommodation and are generally developed and professionally managed by institutional investors, developers or community housing providers.
Owners of Build-to-Rent land will be able to deduct interest for as long as they hold the property and continue to operate it as a Build-to-Rent dwelling. Any subsequent owner can also deduct interest for as long as they operate the property as a Build-to-Rent dwelling.
Taxpayers who own existing Build-to-Rent land, or are able to meet the Build-to-Rent criteria by 1 July 2023, will be able to deduct interest from 1 October 2021, and this will continue in perpetuity while they continue to satisfy the exemption requirements. The exemption will be retrospective which means those taxpayers who have already filed their 2022 income tax return without an interest deduction will be able to amend their return.
To qualify for the Build-to-Rent exemption, the following must be satisfied:
As usual, the devil is in the detail. It is however interesting to note that a Build-to-Rent exemption was considered and dismissed at the time the interest limitation rules were introduced last year, on the advice of Inland Revenue, who argued that exempting Build-to-Rent land would risk “undermining the overall policy objective” of the interest limitation rules.
It remains to be seen whether the new exemption, which effectively reintroduces the old status quo of interest deductibility, as opposed to any real incentive to encourage such development, will actually encourage further Build-to-Rent developments in New Zealand, particularly in the light of other ongoing headwinds such as construction material and labour shortages, spiralling prices and the current declining tenant demand due to increased numbers migrating away from New Zealand.
Please contact your Nexia advisor if you would like to discuss the new exemption, or the interest limitation rules in general, or you can get in touch via our general contact details here.