New Zealand: Update on “housing tax,” draft legislation released

More information relating to the government’s “housing tax” announcements

More information relating to the government’s “housing tax” announcements

Draft legislation—contained in a supplementary order paper (SOP) to the “Taxation (Annual Rates for 2021-22, GST, and Remedial Matters) Bill”—provides more information relating to the government’s “housing tax” announcements.


  • Housing policy announcements were released in March 2021. Read TaxNewsFlash
  • The government in June 2021 released a discussion document for public consultation regarding the housing tax. Read TaxNewsFlash

What’s in the SOP?

  • The SOP confirms the 1 October 2021 effective date and general approach to interest limitation. Broadly, there would be no interest deductibility from that date for borrowing relating to property acquired on or after 27 March 2021 with deductions phasing out over five years for borrowing relating to pre-27 March 2021 property.
  • The interest limitation rules would not apply to new construction (new build) for a maximum period of 20 years, regardless of the owner.
  • A new construction generally would be a residence that receives a Code Compliance Certificate on or after 27 March 2020.
  • In addition to the new construction exemption, there would be a range of general exclusions from the interest limitation rules (such as for retirement villages and rest homes, student accommodation, hotels and motels) as well as for Māori collectively owned land and housing and for social housing.
  • Closely held companies (those with five or fewer shareholders owning more than 50%) and residential land-rich companies would be subject to the interest limitation rules. This removes the current automatic interest deductibility for such companies.
  • Refinancing of pre-27 March 2021 borrowing would be eligible for the phasing out of interest deductions over time. This would be limited to the loan balance as at 27 March 2021. Special rules are proposed for variable loans, such as revolving credit or overdraft facilities. New borrowing on or after 27 March 2021 relating to pre-27 March properties would generally be subject to full interest denial from 1 October 2021.
  • Limited rollover relief (when there is no change in economic ownership) is proposed for residential property transfers for bright-line test purposes. 
  • The SOP also contains a fringe benefits tax rate change so employers can elect to pay fringe benefits tax at 49.25% (the 33% marginal tax rate equivalent) for all employees with all-inclusive pay under $129,681* (i.e., those earning below the 39% marginal rate equivalent). 

What’s next?

With the final missing pieces of the housing tax puzzle now seemingly in place, the SOP and draft legislation will be considered by the Finance and Expenditure Select Committee. It is expected that the Select Committee will call for public submissions, which will give another opportunity to provide feedback. The likely legislative track means the bill (including the SOP) would not be enacted until early 2022. 

Read a September 2021 report prepared by the KPMG member firm in New Zealand

*$ = New Zealand dollar


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