"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.
- residential rental income from future years (from any property); and
- taxable income on the sale of any residential land.
Solutions for Investors
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
- paying down debt to make the property cashflow neutral
- buying cash-flow positive property to get income into the portfolio to offset the losses
- re-budgeting to account for the fact that there may not be any tax refunds
- consider restructuring - although you need to be careful that this is not done purely for tax purposes, as this could be considered tax avoidance by IRD.
- This is not law yet
- You have time to implement solutions
- As more information comes to hand and the proposals are firmed up, we will make further recommendations
Where to Read the IRD Proposal
How To Make A Submission
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!