New Interest Limitation Rules

16th June 2021

By Ross Barnett - Property Accountant


Discussion Document - Interest limitation rules, published yesterday.

First remember this is only a discussion document and not final legislation.  So the rules might change over the next few months.  


Key points we were expecting or similar to expectation.


  • Interest limitation for residential and short-term accommodation like Airbnb
  • Commercial properties are not included.
  • Interest still claimable against flatmate income
  • Personal home with separate rental dwelling, interest limitation would still apply to the rental dwelling.
  • Personal house acquired 26 March 2021 or before, turned into a rental, existing mortgage interest still claimable and phased out over 4 years.
  • Refinancing - no change to deductibility.  So, if rental acquired 26/3/21 or before, then interest will still be claimable and phased out over 4 years.
  • Discussion around whether interest is deductible if property gains are taxed by brightline rules.
  • Interest on Developments to be deductible - many of these would be a new build anyway.
  • Development, where buy, subdivide, build several units and sell.
  • Traders who buy, renovate and then sell, included under this
  • When not a development to sell - then interest to fund the development activity, ie subdivision costs, build costs, would be deductible
  • Mixed use assets, ie holiday homes.   Interest limitation rules to apply.


New build


  • 5 year brightline
  • If just one title, then 10 years on existing and 5 year on new build.  ie if sold in 7 years, just pay tax on gain on existing house portion.
  • On the piece of residential land that has new build on it.  ie buy existing, subdivide and build on back as rental, then 5 year brightline on back part, 10 year on front (watch subdivision rules, as could be taxed under these or other taxation provisions!)
  • Exemption from proposed interest limitation rules
  • Where a self contained dwelling (with its own kitchen and bathroom) has been added to residential land, and the dwelling has received a code of compliance certificate (CCC)
  • 3 categories3
  • Simple new builds
  • Complex new builds - adding dwelling to front or back yard, adding dwelling on top or underneath.
  • Commercial to residential conversions
  • Renovations that do not add to housing supply not included as new builds.  ie adding a room.
  • General rule for new build.  If receives its CCC on 27/3/21 or after, then exemption applies to early owner.
    • Transitional rule - acquire on or after 27/3/21, with a new build on it, no later than 12 months after the CCC is issued.  Still get interest deduction.
    • Early owner - also include “acquires an already constructed new build no later than 12 months after the new builds CCC is issued.  
    • Subsequent purchaser - seems like will get new build exemption.  But only if CCC on or after 27/3/21
  • How long is the new build exemption for?  Still to be discussed.  20 years mentioned but number of options, so hard to know.
  • If a personal home first, then likely to not be a new build for rental terms later.


Not so expected;

  • Only property located in NZ (not overseas rentals) for interest limitation.  Note overseas property still subject to Brightline.  
  • Interest may be deductible on converting single house into multiple flats, and converting commercial/industrial property into residential, and relocating a house
  • The interest may be deductible on loans used for Weather tightening (fixing leaky homes) and earthquake strengthening (only the loan used for this work, not the whole loan)
  • Garage conversion below a house could be a new build.
  • Rollover relief (no brightline sale, no 10 year brightline reset, interest continue as before)
  • Current relationship property and inherited property have rollover relief.  Proposed to continue for relationship property, plus interest to continue as it was.  Government is asking for submissions on inherited property, which most likely will be the same.
  • If consideration, would not be eligible for rollover relief.
  • Applies to properties acquired 26/3/21 and earlier as well, as long as disposal occurs on or after 1/4/22.
  • Couldn’t restructure purely to obtain a lower tax rate.
  • If transfer to a Trust, receive rollover relief.
  • if one Trust transfers to a different trust, where the beneficiaries are identical.
  • Individuals to LTC, or LTC to individuals in certain circumstances

Worth a further look and may create some options.

  • Governments key consideration is whether the property is of a type that would normally be available for owner occupiers (or easily convertible to owner occupier)
  • Part business part residential - whichever has predominated use applies (ie 51% business, then no interest limitation)
  • Short-stay accommodation that is no substitutable for long term accommodation, still be allowed to claim interest.
  • If have residential and other loans (ie commercial property), and in combined loan that can’t be easily traced.  Maybe potential to use stacking, so apply the loan to the commercial first.

Kind regards

Ross Barnett and the Team at Coombe Smith One50 Group Property Accountants.


Property Accountants NZ - here to help you navigate the now tougher than ever property market / rental market in New Zealand.

Contact Ross and the team at Coombe Smith One50 group - doing your own property accounting isn't a good idea.


{Ross Barnett | Property Accountant | upcoming webinars etc here 👉}

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