The Bill that includes ring fencing rental losses was introduced to parliament on 5 Dec 2018.
As a result, I expect this bill to be enacted before 31 March 2019 so that the final legislation is known by the time the changes take effect from 1 April 2019.
The Bill proposes mostly what was outlined in the issues paper released earlier this year which is:
· From 1 April 2019 (2019-20 tax year), tax losses from residential rental properties will be carried forward instead of being offset against other forms of income such as employment income.
· This means that those investors with residential rental properties that make a tax loss that is offset against their employment income will no longer receive a tax refund each year.
· The rental losses will instead be carried forward to be offset against any future rental profits or against any future tax gains under the 5 year brightline rule.
· The ring fencing rules will not be phased in over a number of years as previously suggested so will take full effect from 1 April 2019.
· The rules will apply on a portfolio basis meaning a loss from one rental property can be offset against the profit on another rental property.
· The portfolio basis only looks at rental losses that are included in your personal tax return so it does not include properties you might own under a trust or a normal company (ie not an LTC).
· You will be able to elect to apply the rules on a property by property basis.
· There will be rules that stop various ownership structures circumventing the ring fencing rules.
· The ring fencing rules include residential rental properties both in NZ and overseas.
· The ring fencing rules do not apply to commercial property or mixed use assets such as a holiday home that is rented out.
If you have any repairs to make to your rental portfolio, doing those repairs and getting the invoice for those repairs by 31 March 2019 is important if you want to offset those extra deductions from those repairs against your employment income.
Disclaimer: The above article is general in nature and we recommend you seek professional advice tailored to your specific personal situation.