Not 'money-hungry fat cats': Landlord takes exception to Government reference to interest deduction 'loophole'

An Auckland landlord says he's trying to save for retirement, not exploit the system.
An Auckland landlord says he's trying to save for retirement, not exploit the system. Photo credit: Getty.

An Auckland landlord is taking exception to the Government's reference to offsetting rental expenses as a "loophole", saying landlords aren't money-hungry fat cats trying to exploit the system.

Among a raft of changes announced by the Government on Tuesday, the ability for landlords to offset interest expenses against their income for tax purposes will be axed. For properties purchased before March 27, the change will be phased in over the next four income years from October 1. Investors were quick to respond to Finance Minister Grant Robertson's reference to interest deductibility as a "loophole", with NZ Property Investors' Federation Andrew King referring to the phrase as "rubbish".

The landlord, who asked to be referred to as Graham, told Newshub interest deductibility is a basic rule of tax law and business - it isn't as though some people were doing it and some people weren't.

Having bought a rental property as part of a plan to get ahead, he says he's always played by the rules and treated his tenants fairly, keeping their rent the same throughout COVID-19. Suggesting landlords were somehow exploiting some loophole is "disappointing" and "far from the truth".

"It's almost a political term which suggests all landlords are somehow money-hungry fat cats who are fiddling the system," Graham says.

His rental property is his retirement plan so he doesn't have to rely on the Government, something he imagines the majority of 'mum and dad' investors are also trying to achieve.

"They have a plan in place to save for their retirement and are providing good rental accommodation to people who want and need it...we're not the baddies here," Graham adds.

Removing the ability to claim interest as an expense will soon cost him an extra $1500 per year in tax - $6000 per year in four years' time once it's phased out.

He expects like himself, many property investors will now reconsider whether it's worth holding on to investment properties.

"In terms of it being a viable retirement plan, I'm going to have to redo the numbers - I can't claim the interest and at the same time, all of these housing changes are designed to bring values down," Graham says.

"If I'm not making any money cash-wise (no return on investment) and house prices are not going to rise, potentially it might be silly holding onto an investment property."

From October 1, rentals purchased on or after March 27 won't be eligible for interest deductions.
As some reprieve for existing landlords, interest deductions will still be allowed for rentals purchased before March 27, but the amount they can claim will be reduced over the next four years until it's phased out.

Property accountant Anthony Appleton-Tattersall confirms until October 1, existing landlords can claim 100 percent of interest deductibility.  From October 1 through to April 2023, the claimable amount reduces to 75 percent, 50 percent the following year and 25 percent the year after (applies to those on standard March balance dates).

"As of April 2025, [the claimable amount] is zero."

Although interest is by far the biggest expense, Appleton-Tattersall confirms under new rules, landlords can continue to claim expenses such as rates, insurance, repairs, accounting and legal fees (and limited depreciation).