Residential Property Investment – Proposed Changes
Last week some major changes affecting residential property investments were announced by the Government. This article provides a brief overview of these proposed changes.
Extension of the bright-line test from 5 to 10 years on properties bought on or after 23rd of March 2021. As with the original test the main home is excluded from the extension. Newly built homes are also excluded which, but they still have to use a 5 year bright-line test.
The bright-line test was first introduced in 2015 as a 2-year test, it has since been extended twice to 5 years and now to 10 years. See our original blog on the bright-line test.
Interest deductions on loans for residential properties will not be allowed as an expense for income tax. Currently owners of rental properties are allowed to claim interest paid on the property loan as a deductible expense. This can be a major expense for a lot of landlords. The Governments proposal is to introduce legislation to disallow this as an expense.
Interest deductions on residential property acquired on or after 27 March 2021 will not be allowed from 1st October 2021. Property acquired before 27 March 2021 can still claim 100% of the interest expense in 2021 financial year, however this will decrease by 25% each year till March 2025 after which no interest expense will be claimable.
It is proposed that new builds will be exempt from this legislation hence landlords will still be able to claim interest expense for new builds. (Note: full details will be released once consultation have concluded)
Lifting income caps on first home loans and first home grants to help first home buyers get into their own home. The government has lifted the maximum income cap to get the first home loan and the first home grant from $85,000 to $95,000 for single buyers, and from $130,000 to $150,000 for two or more buyers. Price caps on homes that can be purchased using these assistance programs has also been lifted.
$3.8 billion Housing Acceleration Fund announced to help fund infrastructure around housing developments. This fund also includes additional funding for the land for housing program which the government hopes will accelerate development of vacant land for housing.
Some of the above policies are still been worked though and full details will be known once the relevant legislation is introduced in parliament. In the meantime, if you have any questions regarding property tax get in-touch with our friendly team.