The new law on ring-fencing rental losses is now in force, which means:

  • In most cases ring-fenced deductions will be carried forward and can only be used against residential rental or sale of property income in future years.
  • Property investors will, in most cases, no longer be able to reduce their tax liability by offsetting residential rental property deductions against their other income, such as salary or wages, or business income.

What does this mean? Here’s an example to guide you through: 
Tony owns a three bedroom rental property in Pakuranga, which he lets out at $570 per week. After paying the interest on his mortgage, property management fees, rates and other outgoings, he ends up with a $3,000 tax loss. Tony also works as an IT Manager for the Big Company Limited and receives a $100,000 annual salary.

Before the rule change, Tony would have been able to offset his $3,000 tax loss against his $100,000 annual salary, so that his total taxable income would be $97,000 ($100,000 – $3,000 = $97,000). This way, Tony would most likely have been able to claim a tax refund at the end of the year, because Big Company Limited would have deducted taxes from his salary at an assumed taxable income of $100,000 (rather than the actual taxable
income of $97,000).

The new rules stops that from happening. Instead, the $3,000 tax loss would be carried over to the next tax year, where it can only be offset against any rental profits / taxable property gains.

The new rules apply from the start of the 2019-2020 income year and apply to:

  • Mainly rental properties but can also include other residential land.
  • Individuals, partnerships, trusts, look-through companies and close companies.

Own a rental property? We’re happy to talk you through your tax implications so you don’t get caught out.

Written by Gordon

January 14, 2020

Related Articles

Accounting: A Digital Transformation

It’s 2020 and the accounting industry is experiencing a digital transformation, one which is changing the way we function. The shift from traditional accounting to implement technology has changed the way accountants’ function on a day-to-day basis in the industry....

Govt. Announces Small Business Cash-flow Scheme

The government has announced a plan to provide interest free loans for a year to small businesses which have been impacted by the COVID-19 to help support their cash-flow needs and fixed costs as well. The scheme will provide an assistance of up to $100,000 to firms...

Stay Up to Date With The Latest News & Updates

Join Our Newsletter

Stay up to date with all of the latest news and insights related to your business. Sign up below and we promise to only send you content