Ring Fencing of Losses
In March 2018, the IRD released an issues paper on the proposed ring-fencing of residential rental property losses.
This paper proposes that losses from residential rental properties (both in NZ and overseas) can no longer be used to offset against other income (such as wages/salaries and business income) but instead must be carried forward to future years and offset against future rental income.
The proposed rules will not apply to a person's main home, properties held on revenue account or any mixed used assets (i.e. a holiday home used privately but rented out occasionally).
Also, if you own more than one residential rental property, then under a portfolio basis you will be able to offset losses between income from other properties.
Submissions for the issue paper closed 11 May 2018, so we expect to see some draft legislation soon. We expect that this will apply from the 2019/20 income year (i.e. from 1 April 2019 for March balance dates). However the IRD have indicated that this might be phased in over two or three years.
What does this mean for me?
You will no longer be able to offset rental losses against other income potentially from 1 April 2019.
The impact of these rules is something to keep in mind if you own, or are considering investing in residential rental properties. For more information click this link or to discuss this further - please contact us.
Under new legislation, landlords will be required to have rental properties properly insulated (underfloor and ceiling) and contain a heating source. This applies to any new tenancies from 1 April 2019 and all tenancies from 1 July 2024.
Interestingly, if you do not comply with the rules, your tenants are able to report you, resulting in a $4,000 fine for you which will go back to the tenant.
If you want to discuss implications for you, please contact us.
As you will be aware the government has extended the bright-line rules to 5 years for any residential properties purchased from 29 March 2018.
Any properties purchased from 1 October 2015 to 28 March 2018 will still have the 2 year test applied. For more information see the link to our Fact Sheet for Bright-line Test.
If you are considering selling, buying or transferring property please speak to us first.
This was last updated 1 August 2018.