Tax breaks for investors offering long-term rentals

August 12, 2022
Houses in Wellington (file).

The Government is trying to make it more attractive for landlords to offer their tenants long-term stability by offering a tax break.

As of October 1, new and existing developments that have been built to be rented will become exempt from interest deductibility limits introduced last year as long as they offer tenancies of at least 10 years. Last year's changes placed certain restrictions on investors deducting their interest expenses.

Housing Minister Megan Woods announced the changes on Friday.

She said tenants could ask for shorter tenancy agreements if they wished, and the development would still qualify for the exemption. Tenants will be able to break their agreements at any time, with a 56-day notice period.

Tenants must also be offered explicit policies that will allow them to personalise their rentals over and above what's allowed in existing tenancy laws.

To be eligible, a single development must include at least 20 dwellings in one or more buildings.

“We believe security of tenure is critical for people who are renting," Woods said.

"This requirement will enable people to settle and personalise their homes, reduce how often they must find a new place to live and all those associated moving costs, especially as people face cost of living challenges, and help them to build and maintain connection to their community."

READ MORE: 70% of landlords planning to raise rents this year - survey

For new build-to-rent properties, investors and subsequent owners will be able to deduct interest as long as they continued to operate it as a build-to-rent development.

Existing properties are also exempt from last year's interest deductibility changes in perpetuity if they met the requirements after a transition period.

"We recognise the big role the build-to-rent sector can play in filling a gap in the general rental market by increasing the supply, density, and diversity of housing," Woods said.

Legislation for the changes is expected to be introduced to Parliament at the end of the month as part of the next taxation bill.