New interest deductability rules affecting property investors will come into effect from Friday week, despite full details not yet being announced and Opposition calls for a delay, it is understood.
The broad rule will prevent most property investors from offsetting interest charges against their taxable income.
That was announced by Finance Minister Grant Robertson in March as the centrepiece of a package of measures intended to rein back surging house prices.
The rules already apply to investors who bought property on or after March 27 and are expected to bring in hundreds of millions of dollars of extra tax revenue a year once fully applied.
However, some details of the new regime have yet to be spelt out 10 days before they are due to take broader effect, including the rules surrounding what will be limited exceptions for new builds.
A spokesman for Revenue Minister David Parker confirmed the Government was still targeting an October 1 start date.
The intended rules may be set out in a ‘supplementary order paper’ published before next Friday, but won’t be finalised until they have been examined by a select committee some time later and then enacted.
National Party shadow treasurer Andrew Bayly has called for the Government to delay the tax change until April, so it would not kick-in until after it had been examined and potentially amended by Parliament.
“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,” he said.
The New Zealand tax leader of Chartered Accountants Australia and New Zealand, John Cuthbertson, supported the call for a delay.
It's likely that if there is any fine-tuning that came about as a result of the select committee process that would be in the form of concessions that might make the new regime more generous to investors than the legislation as it would first be proposed, he says.
But it was always best to avoid uncertainty, he says.
“I suspect the Government is relying on the fact that in a lot of cases people won’t need to do tax returns until next year.
“But at the moment people will be having to make decisions about what they do and whether something stacks up or not, not knowing whether they are getting an interest deduction or not.
“You have a situation where you'll have, in essence, retrospective enactment of the legislation.”
Cuthbertson says the main uncertainties for investors included how long investors in new homes would be able to deduct interest against their property income, and whether their right to do that would automatically extinguish if they sold a property, or if any balance could carry over to a new owner.
“We would certainly support a deferral of the date when the legislation become operative,” he says.
The right to transfer an unused portion of any exemption allowing interest deductability appears particularly important to a new group of professional housing investors who are building apartment and town house complexes for rent.
They tend to have a desire to sell buildings to institutional investors soon after construction, so they can recycle capital for other developments.
The Property Council has suggested the Government go a step further and create a specific carve-out for such ‘build-to-rent’ investments from the new tax deductibility rules, treating them as a new asset class in their own right.