Partner’s Opinion – Glen White
The government has indicated several tax changes and even though we are yet to see the new legislation, the Inland Revenue Department has released some guidance that can help taxpayers who will be impacted by the changes to plan.
The trustee tax rate is expected to increase to 39% from 1st April 2024, and a recently released guidance statement clarifies a few issues around this. Companies can change dividend policy to accelerate dividend payments before that tax rate change, and there is no issue if the dividend is credited to a current account rather than paid in cash immediately. More caution should be taken around deferring expenditure to allow higher dividends or paying provisional tax early to accelerate dividends.
The bright-line test taxes capital gains on some residential properties if sold within ten years, or five years for properties purchased from 2018 to 2021. Indications are that this will change to a two-year test from 1st July 2024. If you have a property that is caught under the old bright-line test rules and you are looking to sell, you should consider selling after 1st July 2024. Also, do not enter into an agreement to sell dated before 1st July 2024, even if settlement is after that date.
Interest deductibility for rental property investors is being phased back in over the next two years, with the interest deductibility increasing to 80% in 2025 and returning to 100% in 2026. It was expected that the interest deduction for 2024 would increase to 60%. However, the government has kept the current 50% interest deductibility in 2024 for properties caught by these rules. Some investors have been selling their properties due to the cash flow pressure of higher interest costs and inability to claim all the interest costs. These proposed changes may allow investors to rethink their future decisions around selling, even though they don’t go as far as first indicated in the coalition agreement.
Depreciation on buildings is expected to reduce to 0% from 1st April 2024. We expect the legislation to define buildings, but it will be important that fit-outs and other chattels that are purchased with buildings are separately identified on the asset schedule to ensure a deduction for depreciation on these separate assets can be taken.
The tax rules and changes are complex and specific to your situation. We recommend talking to us regarding your situation and the impact of tax changes before making decisions.
