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Ring-fencing Rental Property Losses

July 26, 2019

Reforms to tax rules designed to ensure greater fairness in residential investment have now passed into law.

This confirms the Government’s commitment to restrict the ability of investors in residential property to offset tax losses from their rental properties.

  • Rental property losses will not be deductible against other income such as salary and wages or business income.
  • Losses will be “ring-fenced” and carried forward and offset against future income.
  • It only applies to residential property not commercial property.
  • Expected to raise $325M over five years.

•Due to take effect from the start of the 2019/20 income year (1 April 2019 for standard balance dates).

Hon Stuart Nash, Minister of Revenue, commented“Before now, investors with loss-making rental properties could subsidise part of the cost of their mortgages with reduced tax on other income. This helped them to outbid other home buyers for properties. Yet they often make tax-free capital gains when these properties are sold.

“The new law also provides greater oversight of land transfers to ensure those buying and selling properties are complying with tax rules on property speculation. It will require most people who buy and sell properties to supply their IRD number on transfer documentation.”

This is another measure aimed at trying to take the heat out of the residential property market.It follows on from the increased restriction on non-residents acquiring residential land, and the extension of the bright line test taxing residential land sold within five years increased from two years.

If you have any questions or wish to discuss this further, please contact our team at Chester Grey.