Let's help you get what you deserve

Dear *|FNAME|*,

This month it’s all about getting what you deserve. And in an environment where inflation is at its highest in 32 years, with flow-on effects for day-to-day expenses and mortgage rates, it’s important that your interests are looked after.

So read on to learn how you can:

• access the residential care subsidy if and when you need it

• protect yourself when buying property off a plan

• meet new residential rental property tax obligations—or take a different path with new builds

• navigate the ever-changing housing market.

Don’t miss out on the residential care subsidy

Some older people manage to get their care subsidised with a residential care subsidy (RCS). Others are forced to sell assets, including their home, to meet the cost of their care needs.

Ever wondered why?

It’s usually the result of careful planning, such as transferring one’s home to a family trust.

The RCS, funded by District Health Boards, assists with the cost of long-term care in hospitals or rest homes for people aged 65+, or 50-64 where single with no dependent children.

It is also both and income-tested for those 65+.

• Your total assets (individually or with your partner) must be less than $239,000. If only one partner is going into care, the value of your house and car may be excluded, and the asset limit drops to $131,191.

• Your income limit will depend on the time of income you have, which can include superannuation, life insurance and trust income. There are also certain types of income that are excluded from assessment.

Any assets you’ve gifted or sold in the preceding five years will also be examined as part of a deprivation assessment, to ensure they were sold for fair value.

So if you or a family member is likely to need care, it is worth considering how to arrange your assets to ensure you don’t miss out on a subsidy.

A family trust is a useful way to do this. However, they need to be set up professionally with care to ensure they don’t attract a deprivation assessment.

That’s where we can help. Get in touch with us to explore how you can put yourself in the best position for the residential care subsidy.

Buying off a plan

Purchasing off the plan (where construction has not been completed or even commenced) is a common move in times of property shortage.

Usually the developer provides the purchaser with an agreement for sale and purchase (ASP) that includes concept plans and specifications—but also clauses designed to hold the purchaser in place.

And while the Fair Trading Act requires any claims developers make about pricing, timing and purchaser rights and warranties to be true and not misleading, enforcing this can rely on the Commerce Commission taking developers to court—which, according to Consumer NZ chief executive Jon Duffy, rarely happens.

Some other common issues purchasers might run into include escalating material and labour costs and open-ended “vendor feasibility conditions”—which vendors can use to cancel contracts after purchasers have been locked into an agreement for some time.

So as a purchaser, it’s important that you understand your risks, rights and responsibilities. Before you sign, get advice from us. And if time is tight or practicalities prevent this, add a clause to the ASP requiring your lawyer’s approval to the form and content of the ASP within ten working days.

If you are considering buying off the plan, contact our residential property team at an early stage. We can provide the advice and support you need.

New tax obligations in place for residential rental property

Owners of residential investment properties are now in for new tax obligations, with the Taxation and Remedial Matters Bill having become law at the end of March, applying retroactively back to 1 October 2021.

The effect is:

• Owners can no longer offset interest costs against other taxable income if they purchased their property after 27 March 2021.

• Owners can still make deductions on property bought prior to 27 March 2021, but this will be phased out over the next three years: 75% of interests costs eligible for deduction now, dropping to 50% for interest incurred between 1 April 2023 and 31 March 2024, 25% between 1 April 2024 and 31 March 2025, and 0% after 1 April 2025.

This does not apply to new builds (properties which received a code of compliance certificate on or after 27 March 2020). Interest will remain deductible on these properties for 20 years after the certificate is issued.

The law has also extended the bright line test from five years to 10 years on existing builds. New builds will remain at five years.

It's another thing to keep in mind when selecting houses for investment: new builds versus existing.

Monthly Housing Update

Average house values have dropped month-to-month for the first time in Christchurch since May 2020. The average home value fell 0.2 percent in March.

Still, most home owners are much better off than they were a year ago. Christchurch’s average home value is 32.4 percent higher than March 2021, at $797,518. And prices have increased 1.8 percent in the past three months, versus a 0.6 percent drop nationally.

QV property consultant Olivia Brownie notes the number of properties on the market has grown, which has led to the number of days to sell also increasing. Buyers are using this to negotiate or take their time.

But the impact on the rental market is a little different. The number of available properties has dropped by a third since this time last year, and average rents are up 9 percent, just ahead of the national increase of 8.5 percent.

So even though things might be changing, there are still a lot of good opportunities for both buyers and sellers. But it’s more important than ever you get good advice. If you’re thinking about entering or exiting the market, contact our residential property team.

Thanks *|FNAME|*.

That’s it for another edition of Legalchat. There's a lot of things to consider when navigating your personal affairs at the moment, so we're just an email or phone call away for any questions or advice to help guide you through it all. Otherwise, we look forward to chatting with you next time.

Regards,

Clive, Grant and the Team at Canterbury Legal