On 5 December 2018, the Government released the first draft of legislation dealing with the proposed ring-fencing of tax losses from rental properties. First impression on reading the Bill is that it is extraordinarily complicated and leaves questions unanswered. Here is a quick summary of the key points.
Before going through this list it is important to note that this legislation is in draft form only and given its complexity I would be highly surprised if there were not changes (and perhaps significant ones) to occur before it finally comes into force. That said, the substance of the key points clearly will not change.
So on to the summary of what the Bill does and does not cover:
In my opinion, loss ring-fencing is socially regressive (as I have noted in previous articles) because high net worth, high income people will be far less affected. If interest rates increase in the future (which they always do), it will have little impact on those with low LVRs and those with high incomes (who will have the cash flow to manage). On the other hand, those with lower incomes and higher LVRs will surely be served up as insolvent dishes to people in better financial positions as they struggle to cope with spikes in rates and lose the ability to get tax relief from such fluctuations because of ring-fencing. This tax policy will increase the polarisation of wealth from poor to rich if interest rates go up – a matter I don’t think this Labour Government has thought through and is contrary to their social goals.
There are serious tax planning matters to come from this. Moving forward, interest in relation to some assets will be deductible, but not deductible over others. Some investors will be able to rework their financing in a fashion that assists with deductibility. Those who do nothing will be subject loss ring-fencing. For help with this, please contact GRA via our website, by phoning 09 522 7955 or email us at email@example.com.
Contact Matthew at firstname.lastname@example.org or call +64 9 522 7955
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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.