The good news is that from 1 April 2025, the rules have changed to make this much clearer — and, in many cases, the interest will once again be fully deductible.
At NZ Tax Accountants Pty Ltd, we assist Australian-based clients every day with understanding how their New Zealand investments are treated for tax purposes. Here’s what these recent changes mean — and some important things to watch out for.
Full Interest Deductibility Restored
For several years, New Zealand’s “interest limitation” rules restricted investors from claiming interest expenses on most residential rental properties. Those restrictions caused uncertainty and additional compliance costs for many Australian investors with property across the Tasman.
From 1 April 2025, these limitations are being removed. This means that, provided your property is genuinely used to earn rental income, interest on your loan will again be fully deductible for New Zealand tax purposes.
So, if you purchase a rental property in New Zealand in mid-2025 using a loan from an overseas bank, the interest you pay on that loan should generally be deductible, just as it would be if you borrowed from a New Zealand lender.
Borrowing Overseas – Other Challenges to Consider
While this change simplifies interest deductibility, investors using foreign loans still need to navigate other important New Zealand tax requirements.
A loan from an overseas bank will often fall under New Zealand’s financial arrangement rules. These rules can require investors to account for not only the interest itself, but also foreign exchange movements and other adjustments over the life of the loan. These calculations can be complex, particularly if repayments or interest are made in a currency other than New Zealand dollars.
In addition, withholding tax obligations can arise when paying interest to a foreign lender. Depending on your loan arrangement, you may be required to deduct non-resident withholding tax (NRWT) from interest payments, or alternatively, register the loan under the Approved Issuer Levy (AIL) system. Choosing the right approach can affect both compliance and cash flow, so it’s important to get advice before the first payment is made.
Together, these financial arrangement and withholding tax considerations can have a real impact on your investment returns — which is why professional advice is essential from the outset.
Helping Australian Investors Stay Compliant
For Australian investors and family-owned businesses expanding into New Zealand, the key takeaway is this:
- Interest on foreign loans used to buy New Zealand rental property is deductible from 1 April 2025, as long as the property earns rental income.
- Foreign currency loans can trigger complex financial arrangement calculations.
- Withholding tax obligations may apply when making interest payments to overseas lenders.
At NZ Tax Accountants Pty Ltd, we specialise in helping Australian property investors understand their New Zealand tax obligations. Our team of qualified New Zealand accountants — based right here in Australia — can guide you through the rules, ensure compliance, and help you structure your cross-border investments efficiently.
Contact us today to make sure your New Zealand rental property investment is structured the right way, from both a tax and financing perspective.
The information in this article is indicative of NZ tax rules and changes and not intended to be complete for all intents or purposes and does not constitute advice. It is recommended that you obtain professional advice, suited to your particular circumstances, from us before acting on anything you read.