Accountants slam interest deductibility changes

Accountancy trade bodies have hit out at the Government's plans to restrict the deductibility of mortgage interest for investors, claiming the reforms will lead to unintended consequences and unnecessary complexity.

In its submission to ministers, Chartered Accountants Australia and New Zealand warned that the law could be overly complex for most Kiwis.

"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."

The group said the move "undermines investor confidence", and would create "boundary issues and complexity".

According to the group, the tax changes will disproportionately impact people that 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 wide spread non-compliance."

The group said that the potential law, in its current form, could lead to residential property boundary issues, confusion over the treatment of non-deductible interest on disposals and losses. It also raised concerns about the level of new build interest concession, with new builds set to be exempt from the law.

CPA Australia, meanwhile, agreed that the law would make the tax system unnecessarily complex, and said the changes would not impact housing affordability. 

The body warned that investors and owners of multiple properties would find it particularly difficult to navigate the new system.

It added the changes "will create more tax issues, unintended consequences, be excessively complex and increase compliance costs. Moreover, it will place enormous strain on the relevant regulatory authorities to police compliance with the new rules."

The consultation period for the law changes closed on July 12. 

The Government's new measures are set to be introduced into Parliament later this year but will come into effect from October 1.

Interest deductibility on existing investment properties will be gradually phased out between October 1 this year and March 2025. 

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