20 year exemption for 'new builds' from tax rule change

 

Interest Deductibility Changes Blog

The Government has set out the details of the 20 year new build exemption which is a carve out to the policy limiting interest deductibility on residential property investments.

Background

From 1 October 2021, interest will not be deductible for residential property acquired on or after 27 March 2021. The ability for investors to deduct interest from properties acquired before 27 March 2021 will be phased out between 1 October 2021 and 31 March 2025.

The exemption for new builds

The exemption for new builds will allow owners to deduct eligible interest from the date that their new build received its Code Compliance Certificate (“CCC”) or the date they acquired their new build (if the property already has a CCC or if it is acquired ‘off the plans’).

The exemption will expire 20 years after the CCC was granted, or when the property is demolished or removed from the land and applies to anyone who owns the property during the 20 year period.

Special rules will apply for properties such as hotel/motel conversions that receive their CCC after a significant delay.

What is a ‘New Build?’

A new build will generally:
• Be a self-contained residence that receives a CCC confirming the residence was added to the land on or after 27 March 2020.
• Be a self-contained residence acquired off the plans that will receive its CCC on or after 27 March 2020 confirming it has been added to the land.
• not have to be made of new material or constructed onsite, i.e. can include modular and relocated homes.
• Be a conversion of an existing dwelling into multiple new dwellings
• Be a conversion of a commercial building into residential dwellings

Exemption for business developing land

If you hold land for subdivision purposes, as part of a land-dealing business, or for the business of erecting buildings on land, the land business exemption will apply. This exemption will also cover interest relating to remediation work and other expenses arising from ownership and development of the land.

Exemption for other property development

Those who do not qualify for the land business exemption, may qualify for the development exemption for eligible interest relating to land that you develop, subdivide, or build on to create a new build. The exemption applies from when development started on the land and ends when the land is sold, or a CCC is received for a new build. Remediation work done on an existing property which is not significant enough to create a new build will not qualify for this exemption.

Author: Priyaanka Khatri

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