Shock! Horror! IRD have released a proposal to ring-fence rental property losses. What does that mean for you?
At present if you own a rental property (sole trader, partnership, LTC) and it makes a loss, then you can offset that loss against your personal income or the income of the shareholder/s (in the case of an LTC). This means you pay less tax or get a tax refund. In IRD speak, that is
"Currently investors (particularly highly-geared investors) have part of the cost of servicing their mortgages subsidised by the reduced tax on their other income sources."
Thousands and thousands of Mums and Dads across New Zealand have become landlords in this way, and the tax refunds help pay for the mortgage.
From 2019-20 onwards (or possibly phased in), losses won't be passed on to the owners, so no more personal tax refunds. Instead, ring-fenced residential rental* or other losses from one year could be offset against:
Solutions for Investors
IRD make this comment:
It is suggested that the loss ring-fencing rules should apply on a portfolio basis. That would mean that investors would be able to offset losses from one rental property against rental income from other properties – calculating their overall profit or loss across their portfolio.
So, our initial thoughts are that investors with negatively-geared property need to look at
Where to Read the IRD Proposal
Goto this page
How To Make A Submission
Officials invite submissions on the suggested changes and points raised in this issues paper. Send your submission to email@example.com with “Ring-fencing rental losses” in the subject line.
Ring-fencing rental losses
C/- Deputy Commissioner, Policy and Strategy
Inland Revenue Department
PO Box 2198
The closing date for submissions is 11 May 2018, so if you want to say something, you'd best be quick about it!
Check out Part 2 here
* If your house is a Mixed Use Asset, ie you use it as a holiday home that you rent out to others, then the rules wouldn't apply to you. They also don't apply to your "main home" ie where you live, or if you are buying and selling houses for profit e.g. a trader.
Accounting for your rental residential investment property; general taxation advice.