The government has announced the complete restoration of interest deductibility on residential rental properties. Currently, the interest on loans for many residential rental properties is either fully non-deductible or is gradually being phased out for existing debt due to previous rule changes.

As stated by the Finance Minister, the reintroduction of these deductions is expected to be finalised early this year. Based on the National-ACT Coalition Agreement, potential percentages of allowable interest deductions for upcoming tax years are as follows, although exact details are pending confirmation:

2023/2024 tax year (current tax year) – 60% deductible
2024/2025 tax year – 80% deductible
2025/2026 tax year – 100% deductible
This restoration will offer relief to residential rental property owners, enabling them to once again access tax deductions to mitigate year-on-year tax liabilities, especially considering the ongoing increase in lending costs related to properties. It’s important to note that there have been no announcements regarding changes to the ring-fencing rules (residential property deduction rules) for residential rental properties, so these rules are expected to remain in effect, limiting the total deductions that can be claimed.

Given the complexity of property tax rules and the pending changes, there remains uncertainty surrounding the exact implications for property owners.For tailored advice for your specific situation, as these changes are enacted, we encourage you to reach out to us at BCA.