Legislation excluding build-to-rent developments from interest limitation rules passed
Published 03 Apr 23
Parliament has passed legislation confirming that new and existing build-to-rent developments on build-to-rent registered land are excluded from recent changes to interest limitation rules in perpetuity.
For land to be registered as build-to-rent, a property must meet all of the requirements included in the definition of "build-to-rent land", as outlined in section YA 1 of the Income Tax Act 2007.
The exclusion for build-to-rent land from the interest limitation rules ensures that the interest limitation rules do not disincentivise investment in build-to-rent developments, and means that such developments can continue to contribute to quality rental supply in Aotearoa New Zealand and generate better wellbeing outcomes for people who rent.
Definition of ‘build-to-rent land’
- at least 20 dwellings in one or more buildings that comprise a single development, on a single project-based parcel of land (as described in section CB 12(1)(a) to (e) or CB 13(1)(a) and (b) of the Income Tax Act)
- the dwellings and any common land or facilities for those dwellings have a single owner
- the dwellings are used or being made available for rent under the Residential Tenancies Act 1986
- tenants must be offered a fixed-term tenancy of at least 10 years (which will enable them to terminate the tenancy with 56 days’ notice under section 58A of the Residential Tenancies Act 1986), but they may agree to or request other tenancy offers. That is, a tenant does not have to accept a 10-year tenancy offer
- explicit personalisation policies must be provided, with reference to sections 42, 42A and 42B of the Residential Tenancies Act 1986, and including examples of possible personalisations and the landlord’s position on the keeping of pets
Land verified build-to-rent must continuously meet the above requirements.
To ensure alignment with the interest limitation rules, the exclusion applies retrospectively from 1 October 2021. Existing build-to-rent developments have until 1 July 2023 to meet the build-to-rent land requirements and to apply for registration. The exclusion will apply to registered new build-to-rent land (developments built on or after 1 July 2023) from the date of application for registration.
Applying for the exclusion
Prospective build-to-rent providers must apply to Te Tūāpapa Kura Kāinga – Ministry of Housing and Urban Development to have land registered as build-to-rent to be able to claim a deduction for interest relating to a build-to-rent development on the land.
Once approved, Te Tūāpapa Kura Kāinga – Ministry of Housing and Urban Development will record land on an internal register of build-to-rent assets and will share relevant information with Inland Revenue.
For more information, please visit Build-to-rent - Te Tūāpapa Kura Kāinga - Ministry of Housing and Urban Development (hud.govt.nz)(external link)