Changes that limit the offsetting of rental property losses against individual income are now in effect and apply from the 2019-20 tax year.
The changes mean that losses from rental properties can only be offset against other rental profits in your portfolio, or against gains from the sale of property. Losses which do not have other portfolio income to be offset against, will be rolled forward to be used in future years – this includes companies, look through companies, and partnerships.
Property affected by the changes will only be “residential rental properties” which are on “residential land” – note that this is any land, and not just land in New Zealand.
These new rules do not apply to any land that is your main home or a mixed-use asset or property that will be taxed on sale under the ordinary land sales rules.
The new legislation requires you to tell IRD if you hold your property on a portfolio basis or a property-by-property basis. The key difference between portfolio and property-by-property basis is that for portfolio basis the expenses of one property can be offset against income from other properties, which isn’t the case with property-by-property basis. Without any election, the default position is that the portfolio basis would apply.
If you have any questions about these new rules please don’t hesitate to get in touch by emailing info@rightway.co.nz, calling 0800 555 024, or speaking to your usual RightWay contact.