During its oral submission to the Finance and Expenditure Committee earlier this week, Chartered Accountants Australia and New Zealand (CA ANZ) urged the government to resolve the complexities brought on by the new tax laws related to the bright-line test. The accounting body recently surveyed 361 of its members and found that as much as 70% had already met with clients who expressed intentions to change their residential property investment behaviours as a result of the bright-line test.
The bright-line test refers to a rule that would see property owners selling a residential property they have owned for less than 10 years pay income tax on the profit made on the sale. The profit is the difference in value between when the property was bought and the sale price. This is subject to certain conditions including when the property was acquired, if it was a new-build, and if it is the main home.
The CA ANZ survey, carried out in conjunction with Tax Management New Zealand (TMNZ), found that investors were suffering confusion due to a lack of clarity on the new tax policies. Tax leader, John Cuthbertson, highlighted two issues, the complexity of the rules and confusion as to details that may change before the legislation is enacted in March 2022.
The new property laws were introduced in a bid to help cool the overheated NZ housing market. Housing prices rose dramatically by 31% over the year to July with the average national house price hitting an all-time high of NZ$937,000 as of September. CA ANZ believes that the confusion surrounding the new tax rules could be discouraging to investors and may result in high levels of non-compliance.
In the survey, 21% of respondents did not feel confident in advising clients on matters related to the new-build interest limitation rules. Another 65% also reported feeling that the ending and denial of interest deductions would be difficult to comply with. About half of those surveyed also did not feel confident in their ability to advise investors on the new build bright-line test.
Cuthbertson noted that the new policies had not been developed in line with the generic tax policy process (GTPP). He said that this failure was likely to increase the risk of collateral damage. He added that the level of complexity was likely to be affected by such factors as the number of properties owned by investors, banking arrangements that were in place, and the combination of interest limitation rules and concessions that applied. He indicated that the current format of the policies allowed for much variability in compliance and that not everyone had a tax accountant or agent to help them figure things out.
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