The Demise of the Residential Rental Loss
Not only have residential investors recently been hit with the extended 5-year bright-line test, the new loss rules will mean many residential rental property owners may struggle to cashflow the costs of owning the property.
Draft legislation has been released proposing the
ring-fencing of residential rental losses to be in place, in full,
from the beginning of the 2020 income year.
No staged implementation, as was suggested, will take
place, rather the last opportunity for residential rental property
investors to offset their rental losses with other income sources
will be at the end of this current tax year - 31 March 2019 for
most.
The draft legislation is expected to have its first
reading next week, and with public consultation having taken place
earlier this year, it is highly unlikely the draft legislation will
change.
The ring-fencing rules will not apply to a person's main
home, nor to mixed-use properties, such as the family bach.
The rules will however apply to overseas residential rental
properties as well as New Zealand properties.
For those with a portfolio of residential properties,
rental losses of one property can be offset against other rental
profits in the person's portfolio, or against gains from the sale
of properties.
Given the onslaught of new rules and regulations being
imposed on residential landlords, from the new Healthy Home
standards, to limiting rental increases, the increased 90-day
notice period and allowing tenants to make changes to the property,
and now the removal of the loss offset, some investors are surely
going to be reconsidering their investment decisions when they tuck
into their Christmas turkey in a few weeks' time.
Whether it be exiting the market or increasing rents, the
changes do not bode well for solving the current shortage of
residential rental properties.
If you would like to discuss the impact of the new loss rule,
please contact the Knowledge Shop team.