The new proposed tax rules hitting rental property investors

Ring-fencing tax laws are proposed to come into effect on 1st April 2019. If you’re a property investor, you need to know about the proposed changes as they could have an impact on your ability to offset your rental property losses against your income to reduce your tax liabilities.

Here is what you need to know.

What is ring-fencing? Ring-fencing is when the IRD seeks to separate your rental property income from any other income you have. For example, if you earn income from rent on your rental property it will be separated from your salary or wages income when it comes to calculating your tax obligations.

How does ring-fencing impact me? As a rental property investor, under the current laws, you’re able to lump all of your income and losses in together (providing your rental is owned by you personally, rather than a trust or a company). This means that you can offset any costs incurred on your rental property (interest, repairs, maintenance and so on) against your total income. As an example, currently if your total income (rental income plus salary income) is $85,000 and you have $5,000 worth of rental losses (for example $10,000 worth of rental income and $15,000 of rental expenditure), your total taxable income is $80,000. Under the new laws, the $5,000 worth of losses can only be offset against future income that comes from your rental property.

When? If the bill becomes an act, the new ring-fencing laws come into effect on the 1st April 2019, for the 2019/2020 tax year. If you’re looking to spend any money on your investment property, you need to do so BEFORE 31 March 2019! Any costs incurred after that date will be in the 2020 financial year and can only be used to offset your rental income for tax purposes, not your total income.

The tax bill was introduced into Parliament on 5 December 2018.

Does this new law impact you? If you have any questions about investment property ring-fencing tax laws, the Villa team is here to help. Contact us today.

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