New Tax Rules on Residential Property Investments (In Brief)

As most of you will know the LVR restrictions on lending for residential property has eased slightly with an increase in up to 65% being able to be lent on rental properties and more in certain circumstances such as new builds. The sting in the tail for residential investors however is that the Bright line Test is being extended from two years to five years as at royal assent date which is supposed to be sometime this month (March 2018). This gives people a small window to secure some property sales under the old two year rule.

In simple terms the Bright Line Test runs from the time a property is acquired (settled) until the time an agreement for sale is signed for disposal of the property. Under the old rules if this occurred within a two year time period on a residential rental property investment the subsequent capital gain was taxable. This is now to be extended to having to hold the property for five years.

There are exemptions from the Bright Line Test, such as inherited property, and your main residential abode. If in doubt regarding these exemptions its always best to talk to your Accountant.

Other potential tax changes the new government are looking at are ring fencing of losses on residential properties meaning that you cannot offset them against other income. There are also non tax changes in terms of notices to tenants, property standard requirements etc.

In my humble opinion I doubt all of the proposed changes (apart from the new Bright Line extension) will come into effect. The reason being is that we are already seeing some clients selling rental properties due to these proposed changes as they see them as the final nail in the coffin for being a residential rental investor. If private investors decided to remove themselves from the residential rental market on mass then the government would be forced to provide levels of state housing that they simply could not afford.  Hopefully common sense will prevail.

If any of this article does raise questions and concerns please phone your Accountant for advice.

Darren Knight
Middleton Holland & Associates Ltd
Chartered Accountants
Ph 09 415 2334 Ext 201
Mob. 021755696



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