On Thursday, it released a consultation document with details of its proposals.
It confirmed that investors would still be able to claim home loan interest on new builds, and proposed a new build would be defined as a self-contained dwelling (with its own kitchen and bathroom) which had been added to residential land.
Deloitte NZ tax partner Robyn Walker said the proposed definition of a new build was relatively wide and was not just a brand-new townhouse on vacant land.
New builds would also include a house added to a property, whether stand-alone or attached, a house replacing an existing house, one house renovated to create two houses, and commercial properties converted into apartments.
Additionally, if a house was added to vacant land it would not have to be new or constructed on-site to qualify as a new build. That meant modular or relocated houses would qualify.
Significantly renovating a previously uninhabitable house so it was habitable could also qualify as it increased housing supply. However, the Government wanted feedback on how that could work.
Walker said the broad definition was good as it encouraged subdivision and building on existing land, but it meant the interest deductibility apportionment process could be complex.
“People building on existing property, which has an existing loan, will have to figure out what proportion of their interest deductibility will sit with the new loan and where the line between them is.
“It is important to be aware of that and to read what is proposed before rushing out to refinance loans to do a new build.”
The document also proposed that anyone who developed property to add a self-contained house or who acquired a new build within a period of time would be able to deduct interest for some or all of that property if it earned income.
Associate Finance Minister David Parker said this would channel property investment towards increasing housing stock and away from direct competition with first-home buyers and owner-occupiers for existing stock.
But Walker said there was still a question mark around whether subsequent owners would also be exempt from the interest deductibility changes and how long the new build exemption might last.
The document put forward three options around these issues, but they had to be addressed carefully, she said.