If you own a rental property that is secured by a mortgage, interest deductibility means that the interest you pay on that mortgage can be deducted from your rental income. The result of this is that you would end up paying less or even no tax on your rental income.

Under the previous Labour government there were plans to remove this ability for property investors to offset those interest expenses against rental income but the pendulum has now swung the other way with the National, ACT, NZ First coalition government agreeing to reinstate interest deductibility beginning with a 80% deduction in 2023/24 followed by an incremental increase with a planned 100% deductibility in 2025/26.

However, losses are ringfenced against property investment rental income, so investors can't claim the loss against their other income, as they were able to in the past.

There are varying views on how this will affect the property market. Some view that the increase in rental rates over the past few years is partly due to the removal of interest rate deductibility with Landlords passing costs on to their tenants and that the reinstatement of interest deductibility could help prevent further increases along with encouraging more competition. The more attractive it is for people to own a rental property the larger the selection of properties available for tenants to choose from. While others disagree, stating that these changes don't guarantee any savings or improvements for tenants and that rents will continue to rise only slower than they otherwise would have.

Please contact us if you are interested in purchasing a rental property or already own a rental property and would like advice on what the recent changes could mean for you.