Rental Losses to be Ring-Fenced
Another so-called tax ‘loop-hole’ about to be closed
On the Labour party's pre-election tax policy wish-list was the
ring-fencing of residential rental losses.
Over the weekend the Revenue Minister, in his speech to IFAC in
Queenstown, confirmed that this was a current priority of the
Government and we are therefore likely to see draft legislation to
this effect in the next Tax Bill.
This will mean that investors will no longer be able to offset
tax losses from their residential investment properties against
their other income to reduce their tax liability.
The Government sees this as a key measure in making the tax
system fairer while improving housing affordability for
owner-occupiers.
Unlike what is happening with the extension of the bright-line
test, the Revenue Minister has stated that this ring-fencing
proposal will go through the usual Generic Tax Policy Process which
means there will be a consultation period and opportunity for
submissions from effected parties.
It will be interesting to see what parameters are placed around
the ring-fencing, such as how will 'investor' and 'residential
investment property' be defined? Is a taxpayer with 5 rental
properties an investor or are they in the business of
renting? Is a holiday home rental or Airbnb property a
residential investment property? Will the policy be phased in
over 5 years as was indicated in Labour's tax policy manifesto?
Once the ring-fencing is in place we are likely to see a large
number of 'mum and dad' rental property investors selling their
investment properties as often these investments were only
sustainable due to the PAYE refund the taxpayers received as a
result of the loss offset. With investment properties
typically being highly geared, even given the low interest rates,
the negative cash flow is sure to bite. Likely the
Government's intended result to increase the housing supply, but
has the impact on renters been fully thought through?
With their retirement nest-egg gone, what other forms of
investment will these mum and dad investors turn to? Will
Kiwisaver and the sharemarket for instance provide the same
security as bricks and mortar did?
Time will tell…
Shelley-ann Brinkley
T +64 9 414 5444
E shelley-ann.brinkley@hayesknight.co.nz