Ring-fencing of rental losses

Written by Gordon Tian

March 11, 2019

Tax

Residential Rental Properties: Tax Changes The Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Bill was introduced into parliament late last year and is currently in the select committee stage.  
 
The Bill introduces the ring-fencing of losses on residential rental properties from the start of the 2019-20 income year, i.e., from 1 April 2019 for 31 March balance dates. What this means is these tax losses will no longer be able to be set off against other income and the key features are:
 
(1) The rules are proposed to apply to “residential land” which does not include farmland, main home, mixed-use property, property that will be taxed on sale, property owned by widely-held companies, (certain) employee accommodation.
 
(2) The rules will apply on a portfolio basis, that is, taxpayers would be able to offset deductions for one residential property against income from other properties
 

What this means is these tax losses will no longer be able to be set off against other income

(3) Ring-fenced residential property deductions will be able to be offset against future residential rental income and taxable income on the sale of residential land. Any remaining unused deductions will generally continue to be ring-fenced
 
(4) A rule is proposed to prevent interposed entities being used to circumvent the deduction ring-fencing rules
 
What this practically means is that any losses resulting from residential rental activity will not be able to be used to offset against other income, and for some people this will mean that they will no longer receive tax refunds.

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