Rental Loss Ring Fencing and Other Changes are Coming!

Craig McCallum
03 928 5158
027 698 9511

Brad Phillips
03 211 3782
021 317 151

The much signaled changes (as discussed in our April 2018 Topical Taxes) to how residential rental properties are taxed were introduced to parliament on 5 December 2018 in the form of the Taxation (Annual Rates for 2019-20, GST Offshore Supplier Registration, and Remedial Matters) Bill. This Bill has passed its first reading with the report on the Bill’s submissions expected by 11 June 2019.

The loss ring fencing rules will, generally, prevent taxpayers from offsetting tax losses from residential rental properties against their other income. This will mean these taxpayers will, generally, pay more tax. If a taxpayer has losses which have not been utilised when they dispose of the property, and the gain on that property is subject to tax, these losses may be able to be offset against that gain.

The rules will apply to residential properties with farms, mixed-use assets and certain employee accommodation excluded from the rules.

It is proposed that these rules will come into place from 1 April 2019 for the 2020 income year.

We will provide a detailed analysis on these changes once the legislation has been finalised.

Other changes of note in this Bill include:

  • The definition of a settlor for trust purposes will be expanded to include beneficiaries whose current accounts are greater than $25,000 and which do not have interest charged at current FBT prescribed interest rates. This change will mean more people will be less likely to receive Working for Families tax credits. These “new” settlors will be required to declare their share of the retained trust income as Working for Families income.
  • Expanding the definition of income for Working for Families purposes to include payments from trusts to non-settlor beneficiaries.
  • Requiring payers of schedular payments and employers of casual agriculture employees (CAEs) to deduct student loan repayments from these payments if the recipient of the payment has a student loan.
  • Requiring overseas supplier of goods, who sell more than $60,000 of goods in New Zealand, to be registered for GST. These suppliers will be required to collect and return GST on goods valued at or below $1,000 supplied to consumers in New Zealand, unless the purchaser is a GST-registered business in New Zealand. We explain these rules further in our October 2018 edition of Topical Taxes.

Please give us a call if you wish to discuss any of these topics further.

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