The Government has released legislation containing the proposed rules to limit interest deductibility for residential property investors.

The changes to interest deductibility were first announced in March as part of the Government Housing Package and a discussion document on the proposals was released in June.

The goal of the changes is to support more sustainable house prices, including by dampening investor demand for existing housing stock, and to improve affordability for first-home buyers. 

Property development and new build properties will be exempt from the changes. This is to ensure that much-needed new housing supply continues to be built.

Properties used for emergency, transitional, public or council housing will also be exempt from the changes.

This means interest will still be able to be claimed as an expense against income.

The legislation also includes a 5-year bright-line that will apply to new builds instead of the standard 10-year bright-line test.

This means a new build property will not be subject to tax under the bright-line if it is sold more than 5-years after it was purchased.

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The Supplementary Order Paper (SOP) will be considered as part of the Taxation (Annual Rates for 2021-22, GST, and Remedial Matters) Bill(external link).