Tax changes affecting property investors detailed by the Government on Tuesday are likely to reap $1 billion over the four years they are phased-in, Revenue Minister David Parker says.
But Parker rejected an assessment from the National Party that the newly-fleshed out interest deductibility rules would inevitably push up rents.
The rule changes will lower the returns that many landlords can earn from rental properties for any given rent.
“Over the first four years we're expecting a decrease of tax deductions totalling $1b,” Parker said.
But Parker said rents were “by and large set by the ability of people to pay”.
“Landlords already extract as much rent as they can from their tenants, in general,” he said.
The Government set out the details of how the right to interest deductibility will be removed on most property investments, with a 20-year exemption for new builds resulting in a modicum of relief from some investors.
Parker said the ability for investors to deduct interest payments from their taxable income from property investments that they made before March 27 would be phased out over the period from Friday until March 31, 2025, with some exceptions.
Investors who are impacted by the rule change will still be able to apportion 75 per cent of their interest charges against their relevant taxable income between Friday and March 31, 2023, 50 per cent during the following tax year, and 25 per cent in the tax year after that.
The broad rule to prevent most property investors from offsetting interest charges against their taxable income was announced by Finance Minister Grant Robertson in March as the centrepiece of a package of measures intended to rein back surging house prices.
But investors have had to wait until now to see the details of what the Government is proposing.
Interest deductibility has already been removed on investments made from March 27.
In the key concession, Housing Minster Megan Woods said properties that received their code compliance certificates on or after 27 March 2020 would be eligible for interest deductions for “up to 20 years from the time the property’s code compliance certificate was issued”.
Importantly, that exemption will apply to both the initial purchaser of the new build and any subsequent owner within the 20-year period, making the benefit transferrable.
Deloitte tax partner Robyn Walker said the details of the rules confirmed on Tuesday, including the 20-year new build-exemption, were more generous than had been anticipated when the policy change was first sketched out.