How much impact the changes will have on the housing
situation is unclear but property investors need to take note.
From March 2018, the bright-line
test, was extended from two to five years.
That means if you bought a property after March 29, 2018 and
sell it within five years, the sale needs to be assessed to determine if it is
taxable under the bright-line test.
Now, new rules that ring-fence rental losses will impact on
cash flow and many residential rental property owners may struggle to manage costs
of owning the property.
In March 2018, an officials’
issues paper outlining the rule changes was published, which
included consideration of a staged implementation but this has not been
introduced.
Now, the draft legislation proposes the ring-fencing of
residential rental losses will in place, in full, from the beginning of the
2020 income year.
It appears there will not be a staged implementation and 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 – March 31, 2019 for most.
Public consultation took place earlier in 2018 and it is
highly unlikely the draft legislation will change.
Like the bright-line test the ring-fencing rules will not
apply to a person’s main home, nor to mixed-use properties, such as the family
bach.
However, the rules will 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.
Residential landlords have experienced numerous changes,
including the new Healthy Home standards, limiting rental increases, increased
90-day notice period and allowing tenants to make changes to the property.
The removal of the loss offset will mean some investors may
need to reconsider their investment decisions when they tuck into their Christmas
turkey next week.
If you would like to discuss tax issues for rental property, please contact your BUSINESS buddy.