Articles by Matthew Gilligan
Losses Ring-Fenced Internationally
Application is not restricted solely to land in New Zealand. Following this, the proposals are intended to apply to rental properties outside of New Zealand that are owned by New Zealand tax residents, e.g. a rental property purchased and owned in Australia by a New Zealand tax resident.
The rules will see tax losses produced by a residential rental property unable to be offset against non-property income. There was a suggestion that perhaps the tax losses should be ring-fenced on a property-by-property basis, meaning that a loss produced by a particular property can only subsequently be offset against taxable income produced by that property, but that is not the current proposal. Instead, the issues paper talks about the ring-fencing applying on a 'portfolio' basis, meaning that profits and losses of different rental properties will be able to be offset against each other. Any surplus loss is then ring-fenced and offset against future property income. Property income includes taxable income on selling a residential property, for example under the bright-line rules.Start Date 1 April 2019
In my view, these rules will weigh a heavy tax toll on lower net worth, lower income families and be quite socially regressive. Consider, who needs tax credits from property losses the most? Poorer, younger, lower net worth investors getting on the property ladder tend to rely on tax credits more. As I have said previously, if interest rates go up substantially due to a disruptive event in financial markets, one could contemplate such lower income/lower equity investors being made insolvent (or more insolvent) by these rules, whereas affluent investors will be less affected. In fact, the poorer investors will be served up as an insolvent dish to the wealthier investors by this policy; it's just a matter of when interest rates spike. It does make me wonder if the Labour Government understands this point – such policy is completely contrary to much of their core voters' interests, while assisting wealthier voters' interests.
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