Government draws flak over interest deductibility changes

by Roxanne Libatique23 Jul 2021

An accountancy trade body, Chartered Accountants Australia and New Zealand (CA ANZ), has slammed the government’s plan to restrict the deductibility of mortgage interest for property investors.

In March, the government announced a new housing package to deliver a more sustainable housing market and support first-home buyers into homeownership, including interest deductibility changes.

In its submission to ministers, CA NZ claimed that the interest deductibility changes would most likely lead to unintended consequences and unnecessary complexity, including residential property boundary issues, confusion over the treatment of non-deductible interest on disposals, and losses.

The group also raised concerns about the level of new build interest concession, with new builds set to be exempt from the law.

“We believe that the ad-hoc measures introduced and proposed do not accord with good public policy design. The focus to ‘level the playing field’ for first-home buyers by damping residential investor demand for existing housing stock is unduly narrow and will lead to unintended consequences,” CA NZ said, as reported by Good Returns.

Read more: PSA calls on government to rethink response to housing crisis

It explained that the government’s plan “undermines investor confidence” and might only create “boundary issues and complexity.” It also noted that the tax changes would disproportionately impact people who cannot afford tax planning advice.

“We are very aware that many taxpayers who will have to apply these rules will not be sophisticated taxpayers, and if the rules are overly complex, there will be widespread non-compliance,” it said.

The group warned that property investors and owners of multiple properties might have a difficult time navigating the new system, with the changes expected to “create more tax issues and unintended consequences, be excessively complex, and increase compliance costs.”

The Public Service Association Te Pūkenga Here Tikanga Mahi (PSA), a trade union representing and supporting workers across New Zealand, also called on the government to urgently rethink its response to the housing crisis.

“We need an integrated approach to housing. We need to build communities, not just homes, and they must be properly supported by internet connections, social services, libraries, pools, public transport, water and waste pipes, and all the other things that turn houses into homes and suburbs into communities,” said PSA president Benedict Ferguson.

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