On Tuesday 23 March 2021, the Government announced it would be implementing a range of integrated measures to accelerate the building of new houses, including freeing up build-ready land and investing in infrastructure.
The Government introduced the Housing Acceleration fund which aims to increase the supply of houses and improve affordability for home buyers and renters. For first home buyers, income and house price caps have been increased in targeted areas for first home loans and grants.
Of particular interest to landlords are the extension of the bright-line test and the change to the rules that currently allow property owners to claim interest on loans as an expense. We investigate these changes in more detail.
Extension of the bright-line test to 10 years
The bright-line test applies to anyone who sells a residential property that is not their main/family home within a set period after acquiring it. If you sell within a defined time period, you will be required to pay income tax on any profit made due to the property increasing in value.
The current bright-line period is 5 years. The Government has announced it intends to extend the bright-line period to 10 years for residential property, with the exception of newly built houses (new builds). Inherited properties and those which have been the owner’s main home for the entire time they owned it will continue to be exempt from all bright-line tests.
The following flowchart can be used to determine what period of time a bright-line test applies to a property:
This change is effective from Saturday 27 March 2021 except for new builds acquired before this date (for tax purposes, a property is generally ‘acquired’ on the date a binding sale and purchase agreement is entered into, even if the agreement is still conditional).
What the proposed changes mean if you acquire a residential property on or after 27 March 2021:
If you sell the property more than 10 years after acquiring it (or 5 years for a new build), you will not pay tax under the bright-line test on any gain in value. If you sell the property within 10 years of acquiring it (or 5 years for a new build), and it was your main home for the entire time you owned it, you will not pay tax under the bright-line test on any gain in value.
However, if the property was your main home, but was also a residential investment property for a period of time, the Government intends to introduce a ‘change of use’ rule. This will affect the way tax is calculated if the property was not used as the owner’s main home for more than 12 months at a time within the applicable bright-line period. A property subject to the change-of-use rule will only be required to pay income tax on a portion of the profit made through the property increasing in value, proportionate to the time the property was not the owner’s main home.
If you sell the property within 10 years of acquiring it (or 5 years for a new build), and it was never your main home, you will pay tax under the bright-line test on any gain in value. Source IRD
Interest deductions on residential property
The Government is changing the rules that allow property owners to claim interest on loans used for residential properties as an expense against their income from those properties. The legislation will apply from 1 October 2021.
Currently when owners of residential investment property calculate their taxable income, they can deduct the interest on loans that relate to the income from those properties (claimed
as an expense). This reduces the tax they need to pay. The Government has proposed to change these rules.
The Government will consult on the detail of these proposals and legislation will be introduced shortly thereafter. Consultation will cover the details of an exemption for new builds acquired as a residential investment property, and whether all people who are taxed on the sale of a property (for example under the bright-line tests) should be able to deduct their interest expense at the time of the sale. The legislation will apply from 1 October 2021.
Interest deductions on residential investment property acquired on or after 27 March 2021 will not be allowed from 1 October 2021. Interest on loans for properties acquired before 27 March 2021 can still be claimed as an expense. However, the amount you can claim will be reduced over the next four income years until it is completely phased out, as shown in the table below.
This means that in the 2025–26 and later income years, property investors will not be able to claim any interest expense as deductions against their income. If money is borrowed on or after 27 March 2021 to maintain or improve property acquired before 27 March 2021, it will be treated the same as a loan for a property acquired on or after 27 March 2021. Interest on the loan cannot be claimed as an expense from 1 October 2021.
Property developers (who pay tax on the sale of property) will not be affected by this change. They will still be able to claim interest as an expense.
Reader’s Digest has announced its Most Trusted brands for 2021, and Harcourts, New Zealand’s largest real estate brand, has come out on top once again. For the ninth consecutive year, New Zealanders have voted Harcourts their Most Trusted real estate brand, making Harcourts the only real estate brand to achieve this honour since the award’s inception in 2013.
Harcourts Managing Director Bryan Thomson says the continued support from New Zealanders is what keeps the entire team at Harcourts striving to remain at the top. “We are incredibly proud of our teams across the country and we want to thank every New Zealander who has worked with us and voted us number one.”
Thomson continues, “This award really does speak volumes about the reliability of Harcourts’ people who are out there getting the job done. We’ve been looking after the property needs of New Zealanders since 1888, through good times and difficult times, and have continued to support them through the enormous challenges of the past year.”
“More than anything, New Zealanders want to know they are dealing with a real estate brand who they trust and who will do what they say they are going to do. They want to deal with sales consultants and property managers that have expertise, honesty and integrity and who are committed to achieving the best possible result for them. This is something we have been told we excel at and something we plan to continue improving on,” says Thomson.
“We also continue to foster strong relationships with our communities around the country through the work our people do by way of The Harcourts Foundation and the many other charities our team contribute to.”
“To be named the Most Trusted real estate brand for nine years in a row is an outstanding achievement and affirms that Harcourts truly has earned the trust of New Zealanders.”
Iconic Greenhithe Estate
Address | 9 Birchwood Grove, Greenhithe
Agent | Leigh Mosley – 0274 871 705
Agent | Phil Mosley – 0274 585 765
Open Homes | Saturday 27th and Sunday 28th March – 1.00pm – 1.30pm
Auction | Tuesday 30th March 6:00 p.m. On site (Unless Sold Prior)
On the market for the first time in 27 years, this grand Greenhithe estate offers a relaxed, elegant living environment that’s enhanced with a swimming pool and full-sized, floodlit tennis court. Its gracious design is a replica of a classic, colonial-style Victorian villa, and was crafted from plans originally drawn up in Melbourne. The beauty of the four-bedroom, three-bathroom residence is that while it showcases all the gracious hallmarks of a bygone era, it offers the comfort, convenience and peace of mind of a more modern build.
The 2066m2, perfectly flat property is located in Birchwood Grove, one of Greenhithe’s most sought-after and tightly-held neighbourhoods. The quiet enclave backs onto Wainoni Park and has close water access, with calls from the rowers on Lucas Creek often heard across the still, early morning air. Greenhithe is one of the North Shore’s best kept secrets – a peaceful, picturesque village that’s well-connected to the city, North Shore and schools, thanks to its handy motorway onramp.
The owners have raised their family here and loved the incredibly easy lifestyle the single-level home affords, as well as its unique beauty and charm. Sweeping lawns and original plum trees introduce the gracious residence, which has a veranda running the entire length of the front. Finials and intricate fretwork set the scene for the high-quality, heritage-style craftsmanship that follows throughout.
Romantic interiors feature ceiling roses, elegant cornices and a high stud, with all accoutrements curated to enrich the aesthetic – door handles, drapes and striking wallpaper. These are complemented with contemporary must-haves, including HRV and ducted central heating.
From the entry foyer, the accommodation wing extends the length of the house. Two bedrooms are serviced by the family bathroom with spa bath, while the guest bedroom has its own ensuite, as does the master. The master is a spacious parents’ retreat, also boasting a walk-in wardrobe and French doors opening out poolside.
The country-style kitchen is at the heart of the living and dining zones and has timber cabinetry, thick stone benches and an island. The separate formal living and dining room is on one side, while the more casual lounge and dining is on the other. Both have wood burners and offer great spaces for family life and entertaining. The inside flows out to sunny decks and the veranda, which are made incredibly private thanks to the well-established landscaping that frames them. Alfresco entertaining is a pleasure out here, with the outdoor speakers, a large fireplace, the pool and tennis court – believed to be one of only a few in the central village area. The pool room out here could easily be converted into a resort-style pool and tennis pavilion, and a large and thriving vege and herb garden is tucked away behind the gate.
The internal double garage is oversized and has enough space for a workshop area. The dedicated office out here has its own outdoor access and entranceway, making it ideal for those who work from home.
This is a rare and exciting opportunity to acquire one of central Greenhithe’s most admired estates.
The Residential Tenancies Amendment Act changed the way that landlords can end both
fixed-term and periodic tenancies.
Landlords must now give a reason to end a tenancy, and the reason must be one of the specified reasons stated in the Residential Tenancies Act. The good news is that when the ability to serve a 90 day ‘no-cause’ termination on a periodic tenancy was removed from the Act, along with removing the ability to end fixed-term tenancies without providing a reason, new reasons to terminate a tenancy were provided.
The new reasons for terminating tenancies which are provided in the Residential Tenancies Amendment Act 2020 address the reasons given by landlords and property managers for issuing 90 day no-cause termination notices. Landlords will be able to end tenancies for a range of fair and justified reasons, including a tenant’s repeated antisocial behaviour or repeated arrears.
The result is that we now have more grounds for ending tenancies than we did prior to the amendments taking effect.
Let’s look into these in detail.
Landlords can terminate periodic tenancies by giving 63 days’ notice where:
Owner moving in – The owner, or a family member, requires the property to live in. They must move in within 90 days of the termination date and must live in the property for at least 90 days. The property must be their principal place of residence, so this removes the ability for landlords to use the property as a holiday home for part of the year, whilst renting it out for the remainder of the year.
Employee moving in – The property is needed for an employee (and this was clearly specified in the tenancy agreement).
Landlords can terminate periodic tenancies by giving 90 days’ notice where:
Selling a Property: Selling a Tenanted Property – A landlord can sell a tenanted property providing that they notify the tenant as soon as the property goes on the market. If a tenant is on a fixed-term tenancy, the tenancy cannot be ended early by either party, unless mutually agreed. The only change to the legislation when selling a tenanted property is that the notice period has increased from 42 days’ to 90 days’ notice when the owner is required, under an unconditional sale agreement, to give the purchaser vacant possession.
Selling a Property: Tenant Required to Vacate – This is a new ground for termination. If the landlord decides that they want to put the property on the market without the tenant in occupation, they may give the tenant 90 days’ notice to terminate the tenancy, providing the tenant is on a periodic tenancy, or their fixed-term agreement ends on or before the termination date. The landlord must then put the property on the market within 90 days of the tenant leaving the property. It is important to note that no marketing of the property may occur during this 90-day period.
Renovation or Redevelopment – The landlord can give 90 days’ notice to the tenant if they intend to carry out extensive alterations or redevelopment at the property, and it would be impractical for the tenant to live there during that process. The landlord must take material steps towards beginning renovations with 90 days of the tenancy terminating.
Demolition – If a landlord is planning to demolish a property, it is a very good idea that the tenant moves out first. A landlord must therefore give a tenant at least 90 days’ notice and take material steps towards the demolition within 90 days of the tenancy terminating. Taking a material step means applying for regulatory consent, seeking engineering or other professional advice, or taking any other significant step.
Other reasons to end a tenancy
Landlord’s Interest Ends – The landlord is not the owner of the property and the landlord’s interest in the property ends e.g. the landlord leases the property and sub-leases to the tenant, and the landlord’s lease ends.
Business Activity – The property was acquired to facilitate the use of nearby land for a business activity and the property needs to be vacated to facilitate that activity (and this was clearly specified in the tenancy agreement).
Change of Use – The landlord wants to change the use of the premises. The landlord must intend to use the premises for the new use for at least 90 days. This could be changing the use of the property from residential to commercial use.
If none of the above grounds apply, landlords cannot terminate a tenancy without going to the Tenancy Tribunal.
New grounds for ending a Periodic Tenancy
A landlord can apply to the Tenancy Tribunal to end a tenancy where:
Rent Arrears – If the tenant has been repeatedly late with their rent (at least five working days’ late with rent, three times in 90 days) and the required notices have been served on the tenant, the landlord can apply to the Tenancy Tribunal for termination of the tenancy.
Anti-social Behaviour – If the tenant has engaged in anti-social behaviour on at least three occasions in 90 days and the required notice have been served on the tenant, the landlord can apply to the Tenancy Tribunal for termination of the tenancy. If the landlord has successfully applied to the Tenancy Tribunal to end the tenancy for either of the above reasons, the Tribunal will decide what the notice period is.
Fixed-term tenancy agreements – If an original fixed-term tenancy was granted before 11 February 2021, the provisions on termination grounds and notice periods before the law changes introduced by the Residential Tenancies Amendment Act 2020 will apply. Please note that this is also true for a fixed-term tenancy (originally granted before 11 February 2021) that is subsequently extended, varied or renewed. Previously we understood that once a tenancy was renewed or extended, the new rules applied. This has been since been clarified by MBIE. If a fixed-term tenancy granted before 11 February 2021 expires and continues as a periodic tenancy, the law changes apply. A fixed-term tenancy granted after 11 February 2021 automatically converts to a periodic tenancy at the end of the fixed-term unless the term is renewed or extended, or a landlord gives notice using the reasons listed in the RTA for terminating a periodic tenancy, or the tenant gives notice. The notice period provided must be the same as if the tenancy was periodic (i.e. at least 63 or 90 days before the expiry of the fixed-term, depending on the specific ground that applies).
Tenants Giving Notice – For periodic tenancies, tenants must now give at least 28 days’ notice to end a tenancy and they are not required to provide a reason. This notice period is the same for fixed-term tenancies granted after the 11 February 2021. For fixed-term tenancies granted before 11 February 2021, the old rules and notice period of at least 21 days applies.
If you have any questions or concerns about the changes to the way that tenancies can now be terminated, please reach out to your Harcourts Property Manager.
This article is featured in Harcourts Property Management Focus, Issue 3 2021.