Changes to the interest limitation rules

From 1 April 2024, you can claim 80% of the interest incurred for funds borrowed for residential property. This is regardless of when the property was acquired or when the loan was drawn down.

From 1 April 2025 interest deductibility will be fully restored, and you will be able to claim 100% of the interest incurred.

However, Interest deductions that were previously disallowed between 1 October 2021 and 31 March 2024 will remain disallowed unless the property is sold and subject to tax. This means, if the sale of a property is taxable under the bright-line property rule or 1 of the other land sale rules, the amount of the previously disallowed interest can be treated as if it were part of the cost of the property in the year you sell it.

Example 1.

Under the old rule, interest cannot be claimed for residential property acquired on or after 27 March 2021 unless the property is a new build.

John purchased a residential rental property of $1m with a mortgage of $500k and the settlement made on 31 March 2021. The property wasn’t a new build.

Soon after the settlement the property was rented out and total rent received during the 2022 financial year was $60,000 and other costs $10,000 (Rates, Insurance, and other repair & maintenance etc) and $25,000 mortgage interest.

Under the old rule, the interest costs were disallowed therefore John’s taxable income was $60,000 - $10,000 = $50,000 X 33% (his marginal tax rate) = $16,500 tax to pay.

Under the new rule, if the income and expenses are the remain the same for 2025 and 2026 financial year, John’s tax liability will be reduced;

2025 Financial year $50,000 – ($25,000 X 80%) = $30,000 X 33% = $9,900 tax to pay.

2026 Financial year $50,000 - $25,000 = $25,000 X 33% = $8,250 tax to pay.



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The information contained within this website is provided for information purposes only and is not intended to substitute for obtaining accounting tax or financial advice from a professional accountant.