Property · 27 Mar 2021

Govt Removes Current Family Home Exemption For Extended Bright-Line Test

News Desk

News Desk

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The government has taken aim at property speculators with investment houses bought from this Saturday subject to tough new tax rules.

The current exemption for the family home has also been quietly removed – allowing for a scenario where if it’s not used as such for more than a year, it becomes subject to the bright-line test, under which people are taxed on the capital gain of houses bought and sold within a certain period of time.

Finance Minister Grant Robertson also disregarded the advice of Treasury, that wanted the bright-line test to go to 20 years.

However, the two main changes the government will progress are designed to hit investors’ back pocket and discourage investors buying multiple properties and flicking them off for a healthy profit.

The first is doubling the bright line test from five to 10 years, the second removing the ability to claim against mortgage interest as a deduction.

They’re part of a whole bag of policies as well as the tax changes, there’s nearly $4 billion for roads and pipes for new developments, a push for more public housing and apprentices, and new rules for people to access more money for deposits through government schemes.

Under the old bright-line test rules, there was a straight exemption for the family home – but no longer.

If the family home is not used as the primary residence for longer than a year, it is subject to the test, and the tax, calculated on the time it was not being used as a family home.

Another change means “short stay accommodation”, where it’s not the owner’s main home, can’t be excluded from the bright-line test on the basis it’s a business premise.

Finance Minister Grant Robertson denies misleading the public after ruling out extensions to the bright-line test last year’s election campaign. Photo: RNZ / Samuel Rillstone

The jury’s still out on how much impact the whole package will have – the general consensus is it should start to bring prices back in the medium term but don’t expect to see any immediate change.

There’s been an outcry from property investors who say the only result will be fewer rental properties, in turn making it harder for first-home buyers, who’ll end up paying higher rents while trying to save a deposit.

Housing Minister Megan Woods yesterday spoke to Checkpoint about how the package would help mitigate those risks of rent hikes.

Robertson said during last year’s election campaign, there would be no extension to the bright-line test, so the National Party says the tax changes are based on lies and broken promises.

“The Labour Party has lied to New Zealanders, they promised to build 100,000 homes under KiwiBuild … they told New Zealanders there would not be a capital gains tax under their watch, they also told New Zealanders there would be no increase to the bright line test – they have lied on both counts,” said leader Judith Collins.

Robertson admitted he’d been “too definitive” when ruling out any extension, but denied misleading the public.

“We were in an environment last September where we were being advised house prices were going to drop, the opposite has happened, in the interview you’re referring to I didn’t get that right in terms of Labour’s policy, but in terms of the situation we find New Zealand in today, we need to act,” he told reporters.

Capital gains tax or not?
Capital gains tax has always been a sensitive issue for Labour – so sensitive the prime minister has staked her leadership on never introducing one.

The bright-line test was introduced by the National Party in 2015 – it’s a tax on capital gains made from the sale of houses – other than the family home – bought and sold within a certain period.

They insisted – like Labour is now – it is not a capital gains tax, both parties doing so for reasons of political expediency.

ACT Party leader David Seymour said the government should just be upfront: “It’s a capital gains tax by stealth because they don’t have the honesty to come out and say it”.

ACT Party leader David Seymour says the government should be upfront about what the new policy actually is. Photo: RNZ / Samuel Rillstone

Jacinda Ardern rejected that, saying the government was “silent on bright-line … nor did we believe that we would be in a position where a year ago we were talking about a 10 percent decrease in prices, to now being in this situation where we’ve had a 20 percent increase”.

Parliament’s gone into urgency to get the bright-line test law change through before the weekend.

Legislation for other changes, including removing the ability to offset interest expenses against rental income, will be passed at a later date.

Those changes will also apply to eligible houses bought after this Saturday, but the tax changes won’t actually take effect until 1 October.

There will be a four-year transition period for people with existing investment properties; they will be able to claim less as each year passes until 2025.

Source: rnz.co.nz Republished by arrangement.
Jane Patterson, Political Editor
@janepatterson [email protected]