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The Tax Changes for Residential Rental Properties Outlined

by | Nov 9, 2021 | Tax Update

From 1 October this year the Government has limited the ability to deduct interest on residential rental properties to make them a less attractive investment option and thus level the playing field for first home buyers.

As of 1 October 2021, residential rental property tax deductibility was reduced to 75%, meaning you are only eligible to claim 75% of your interest payments as a business expense. This 75% tax deductibility rate will remain in place until 31 March 2023. For the following financial year ended 31 March 2024, you will only be eligible to claim 50% of your interest payments as a business expense against your residential rental income. For the financial year ended 31 March 2025, only 25% of your interest payments can be claimed as a business expense and from 1 April 2025 onwards no interest deductibility will be available.

New Build Exemption

To encourage the supply of new housing, the Government has introduced exemptions from the rules denying interest deductions on new builds. A new build will generally be defined as a self-contained residence that receives a Certificate of Completion and Compliance (CCC) confirming the residence was added to the land on or after 27 March 2020.

The new build exemption will apply to allow you to deduct interest from the dates:

  • you acquire your new build – if it already has a CCC or you acquire it “off the plans”, or
  • your new build receives its CCC.

The new build exemption will expire 20 years after a new build receives its CCC or when the new build ceases to be on the land (for example, it is demolished or removed), whichever is earlier. Where a new build is acquired off the plans and before its CCC is issued, the 20-year fixed period will still run from the date of the CCC. Special rules also apply for new builds that receive their CCC after a significant delay. The exemption will apply to anyone who owns the new build within this 20-year fixed period, and the timing of the exemption will not reset when the property is sold.

If you have any questions, say hello to your walker wayland accountant today.

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