New Interest Limitation Rules

23 May 2023 by Ross Barnett

New Interest Limitation Rules

We originally posted this newsletter on 16/06/2021, and Ross has added the main changes to this discussion document in red to the side.


Discussion Document - Interest limitation rules, published yesterday.

First remember this is only a discussion document and not final legislation.  So the rules might change over the next few months.   

Ross has reviewed 22/5/23 and updates in red. 


Key points we were expecting or similar to expectation.

  • Interest limitation for residential and short-term accommodation like Airbnb
  • Commercial properties are not included.
  • Interest still claimable against flatmate income
  • Personal home with separate rental dwelling, interest limitation would still apply to the rental dwelling.
  • Personal house acquired 26 March 2021 or before, turned into a rental, existing mortgage interest still claimable and phased out over 4 years.
  • Refinancing - no change to deductibility.  So, if rental acquired 26/3/21 or before, then interest will still be claimable and phased out over 4 years.
  • Discussion around whether interest is deductible if property gains are taxed by brightline rules.
  • Interest on Developments to be deductible - many of these would be a new build anyway.
  • Development, where buy, subdivide, build several units and sell.
  • Traders who buy, renovate and then sell, included under this
  • When not a development to sell - then interest to fund the development activity, ie subdivision costs, build costs, would be deductible
  • Mixed use assets, ie holiday homes.   Interest limitation rules to apply.


New build

  • 5 year brightline
  • If just one title, one building existing and one building new.  Then 10 years on existing and 5 year on new build.  ie if sold in 7 years, just pay tax on gain on existing house portion.
  • On the piece of residential land that has new build on it.  ie buy existing, subdivide and build on back as rental, then 5 year brightline on back part, 10 year on front (watch subdivision rules, as could be taxed under these or other taxation provisions!)
  • Exemption from proposed interest limitation rules
    • Where a self contained dwelling (with its own kitchen and bathroom) has been added to residential land, and the dwelling has received a code of compliance certificate (CCC)
    • Commercial to residential conversions
    • Subdivision where existing house had to be moved to enable subdivision, and then both new and existing are treated as new builds
    • Earthquake fix up in some circumstances
    • Leaky fix up in some circumstances
  • Renovations that do not add to housing supply not included as new builds.  ie adding a room.
  • General rule for new build.  If receives its CCC on 27/3/21 or after, then exemption applies to early owner. Changed to 27/3/20!
    • Transitional rule - acquire on or after 27/3/21, with a new build on it, no later than 12 months after the CCC is issued.  Still get interest deduction.
    • Early owner - also include “acquires an already constructed new build no later than 12 months after the new builds CCC is issued.  
    • Subsequent purchaser - seems like will get new build exemption.  But only if CCC on or after 27/3/21 Changed to 27/3/20
  • How long is the new build exemption for?  Still to be discussed.  20 years mentioned but number of options, so hard to know. 20 years.  Example if someone else owned a new build for 2 years, then sold to you, you would have further 18 years of interest deductions.

First remember this is only a discussion document and not final legislation.  So the rules might change over the next few months.   


Not so expected;

  • Only property located in NZ (not overseas rentals) for interest limitation.  Note overseas property still subject to Brightline.  
  • Interest may be deductible on converting single house into multiple flats, and converting commercial/industrial property into residential, and relocating a house
  • The interest may be deductible on loans used for Weather tightening (fixing leaky homes) and earthquake strengthening (only the loan used for this work, not the whole loan)
  • Garage conversion below a house could be a new build.
  • Rollover relief (no brightline sale, no 10 year brightline reset, interest continue as before) Has been further changes 31/3/23, but need to check through Rollover relief carefully as there are many catches.
    • Current relationship property and inherited property have rollover relief.  Proposed to continue for relationship property, plus interest to continue as it was.  Government is asking for submissions on inherited property, which most likely will be the same.
      • If consideration, would not be eligible for rollover relief.
    • Applies to properties acquired 26/3/21 and earlier as well, as long as disposal occurs on or after 1/4/22.
    • Couldn’t restructure purely to obtain a lower tax rate.
    • If transfer to a Trust, receive rollover relief.
    • if one Trust transfers to a different trust, where the beneficiaries are identical.
    • Individuals to LTC, or LTC to individuals in certain circumstances


Worth a further look and may create some options.

  • If have residential and other loans (ie commercial property), and in combined loan that can’t be easily traced.  Maybe potential to use stacking, so apply the loan to the commercial first.


Kind regards

Ross Barnett


Disclaimer: This article has been prepared for the purpose of providing general information, without taking into consideration any particular person's objectives, financial situation or needs. Any opinions contained in it are held by the author as at the report date and are subject to change without notice.

Any changes in law or the facts through a misrepresentation or error or consequential developments may lead to a modification or change to all or part of this opinion. We do not accept a general responsibility to update this opinion for such changes. The opinion expressed herein is not binding on the Inland Revenue Department and we cannot guarantee that they will adopt the same opinion as us.  We recommend you receive specific, expert advice before making any structural changes.

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