The Residential Tenancies laws have changed. What effect does that have on landlords?
Following Royal Assent on 11 August 2020, the Residential Tenancies Amendment Act 2020 came into force on 12 August 2020. The Residential Tenancies Amendment Act will take effect in three main stages:
Phase 1: Law changes to take effect from 12 August 2020
Phase 2: Law changes to take effect from 11 February 2021
Phase 3: Law changes to take effect by 11 August 2021 (but may take effect earlier if the Government agrees)
WHAT CAN YOU DO?
1. LOANS: In other news, with the OCR dropping to 0.25%, your bank should be passing on rate cuts for any floating loans, and it is worth looking at existing loans to see if you should break and re-fix or extend the term. Break fees are tax-deductible. Ask the bank or your mortgage advisor to do the calculations for you, or use this tool here. You might also want to look at a mortgage holiday, but just be aware that this will increase the loan,^ but it will buy you some time, so in the big picture, may be worth it. We suggest you only do this if you really need to i.e. don't rush and organise that with your bank or broker today; wait a couple of weeks to see how things pan out. (By the same token, if doing so relieves you of stress, then it is probably well worth it. Don't feel bad, either way. These are unprecedented events.)
Please see this detailed page with info about mortgage holidays, including links for all the major banks to apply for one. See also our blog post with 4 options for your mortgage to improve cash-flow right now
2. RENTS: Rent increases are off the table at the moment, as rents have been frozen by the government. In Australia, landlords have been asked to be lenient if tenants start to get behind on their rent, and we suggest you keep in close contact with your property manager over the coming months.
3. PAYMENTS: Of course, cash-flow is king, and in this environment, we suggest asking your suppliers if you can start paying in smaller regular installments, rather than bigger sums. This will help reduce the impact of having less cash coming in. EpsomTax.com group offer interest-free time payment plans to all customers as a matter of course; please contact us to arrange this now.
4. INVESTING: This might also be the time to look out for housing bargains - see this article about timing and buying. If you can get a good deal on a cash-flow positive rental, that's going to introduce some $ into your portfolio. Banks are working as normal, and documents can be signed remotely. Of course, inspecting properties is an issue, and getting tenants in (as moving services are likely not considered to be "essential." Nonetheless, getting pre-approval and "looking" (online/via video) at houses can still be done during this time.
Q: An LTC owns rental properties. Some tenants have stopped paying or reduced payments by 30% due to COVID-19. Can the shareholder-employees receive the wage subsidy? What about a sole trader or partnership or trust that owns a rental/s, same situation? Can they apply?
A: Yes. Tenancy Services has a page on the impact of COVID-19. It (previously) said:
If you are likely to continue having trouble, think about other options:
We note that this sentence above has, as of August 2020, been removed from the page. We also note that some landlords have received a subsidy, whereas others have been declined. We suggest you appeal if you are automatically declined, and consult with your accountant. Inland Revenue's "pat" answer to Ministry of Social Development is not always correct.
The key thing to bear in mind when applying is to be well prepared, frank and open about all relevant facts.* Your application will need to identify the people to whom the subsidy relates and, in the case of the LTC, partnership or trust, undertake to use best endeavours to keep them on as shareholder-employees. See here for the declaration that needs to be made.
6. OTHER RESOURCES: Xero.com have provided a page with links to educational content. You don't have to be a Xero user to access all of it. Webinars include managing stress, resilience, business continuity and so on.
What good news is there for the coming weeks and months, in view of the COVID-19 pandemic and its effects on the economy?
Government policy changes include:
* The wage subsidy and leave payments are NOT subject to GST - an Order in Council was passed to treat it as exempt (Section 5(6E)(B)(iii GST Act). The wage subsidy paid to the employer is not taxable; it is excluded income under section CX 47 of the Income Tax Act 2007; it is also therefore not deductible when paid by the employer as part of wages to employees. The payments made to employees are taxable for the employee and subject to PAYE, KiwiSaver deductions, Student loan etc in normal way. The same is true for self-employed persons: it is taxable income. NB: you only need to show a 30% revenue reduction for a single 4-week period to receive the full 12-week lump sum; you should be able to show that you took active steps to mitigate the financial impact of COVID-19, which could include drawing from your cash reserves (as appropriate), activating your business continuity plan, making an insurance claim, proactively engaging with your bank or seeking advice and support from either the Chamber of Commerce, a relevant industry association or the Regional Business Partner programme.
^ How it works is that the principal payments temporarily stop and the interest is added to the mortgage
NB: It is fair to point out that we are accountants and not lawyers. The measures taken by the Government are being monitored and may be changed, as they see fit. Our answers are based on our understanding of the somewhat limited information that has been made available publicly at this point.
Accounting for your rental residential investment property; specialised property tax advice. Buy me a coffee!