Details of the New Policy
Under the coalition agreement with ACT, the government initially proposed backdating the tax deductions to allow for a 60% claim on residential rental income for 2023/2024 tax year. However, this plan was not implemented.
Instead, it will be at 50% for the 1/4/23 to 31/3/24 period (for properties acquired before 27 March 2021) . Starting from April 1, 2024, landlords will be able to deduct 80% of their interest expenses. And by April 1, 2025, when you can claim the full 100%.
Interest cannot be claimed for the 1/4/23 to 31/3/24 for residential property acquired on or after 27 March 2021.
Legislative Timeline
These changes are going to be part of a bigger tax bill, the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Bill, that’s currently in its Second reading.
Reduced Brightline Test
The Government also confirmed plans to shorten the test from 10 to 2 years from July 1, 2024. Under the current regulations, profits from selling an existing investment property within 10 years, or a new build within five years, are subject to taxation. But with this new change, only the sales of properties within two years of buying them will be taxable.
These moves by the government is a positive step for landlords, easing some of the financial pressures faced in recent times. The transition to full interest deductibility will also make financial planning more manageable and predictable.
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