IRD has released an issues paper proposing to ring-fence or restricting the ability to offset rental property losses against other sources of income.
The rules are aimed at levelling the playing field between property speculators/investors and home buyers.
Currently investors who make a rental property loss (rents being less than the deductible expenses) are able to offset their loss against other sources of income to reduce tax on other income.
Some have claimed this is unfair and want to ring-fence this loss so that the loss can only be offset against future rental income.
In other words, The proposed loss ring-fencing rules will mean that speculators and investors with residential properties will no longer be able to offset tax losses from those properties against their other income (for example, salary or wages, or business income), to reduce their tax liability. The losses can be used in future years, when the properties are making profits, or if the person is taxed on the sale of land.
The rules are expected to apply to residential property for rent and will exclude personal family home, holiday homes under the mixed asset rules, and land that is classified as trading property for developers, builders, and property dealers.
It is proposed that the loss ring-fencing rules will apply from the start of the 2019–20 income year. Currently IRD is accepting submissions and you can Send your submission to firstname.lastname@example.org with “Ring-fencing rental losses” in the subject line.
The complete issues paper can be downloaded here.