One of the key changes that the Government has announced, is the proposed removal of deductions for interest on residential rental properties.
Currently rental property owners can claim the interest paid on loans relating to rental properties as an expense, thereby reducing their tax.
The Government has proposed that interest on mortgage will be disallowed as a deduction for residential rental properties acquired after 27th March 2021.
For properties acquired prior to this date the interest will be disallowed over the period of 4 years at 25% per year.
There is no change to the rules regarding claiming expenses such as rates, insurance, repairs and maintenance.
Claiming Interest on Properties Purchased Before 27th March 2021
Interest on properties purchased before 27th March 2021 would still be claimed on a reducing basis over the next four years.
Here is an example
If you purchased a rental property in 2017 and pay $1,250 in interest each month ($15,000 annually), then the proposed change will affect your interest deductions like this:
Income Year |
Amount of $15,000 Annual Interest You Can Claim |
| 1 April 2020 – 31 March 2021 | 100% = $15,000 |
| 1 April 2021 – 31 March 2022 (transitional year) |
1 April 2021 – 30 September 2021 = 100% of 6 months = $7,500 1 October 2021 – 31 March 2022 = 75% of 6 months = $5,625 to a total of $13,125 |
| 1 April 2022 – 31 March 2023 | 75% = $11,250 |
| 1 April 2023 – 31 March 2024 | 50% = $7,500 |
| 1 April 2024 – 31 March 2025 | 25% = $3,750 |
| From 1 April 2025 onwards | 0% |
Claiming Interest On Properties Purchased on or After 27th March 2021
Interest on properties purchased on or after 27th March 2021 would still be claimable in the 2021 tax year for the remainder of the year ending 31 March 2021.
Furthermore, interest would also remain deductible for the 2022 tax year, for the period 1 April 2021 to 30 September 2021. Thereafter the interest would no longer be deductible.
