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Ring Fencing Rental Losses

What is all this talk about loss ring fencing on rental properties?

Basically, any losses on residential rental properties will be ‘ring fenced’.

So, what does this really mean?

For years we have been able to offset losses from residential rental properties in our tax returns against other taxable income, including wages with PAYE deducted. You will no longer be able to do this, instead the losses will be carried forward to future years.

When can we utilise the losses?

Rental losses can be carried forward to the following income year and will only be able to be offset against other income derived from a rental property or you can use the loss to offset any capital gains tax under the bright-line test rules.

If the investor has a portfolio of rental properties, the loss will be allowed to be offset against another property if making a profit.

Who does this apply to and is anyone excluded?

It applies to all entities and individuals, the exclusions are:

- A taxpayer's main home

- Residential property already subject to the ‘mixed use asset’ rules

- Residential property that will be taxed on sale

- Residential property owned by a widely held company (25+ shareholders)

- Certain employee accommodation

When will it apply from?

The legislation is effective from April 2019 (the 2020 financial year). So the year ending 31 March 2019 is the last year you can offset losses.

Please get in contact with us if you want to talk through what is best for your circumstance.

For more details, check out the IRD official papers here.

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