"Ring-fencing Tax"
Cash-flow assessment
Normally "profits" are added and "losses" are subtracted for income tax payments.
After 2023, "losses" from residential rental homes can not be used to off-sett or reduce taxable incomes.
This means that owners of loss making "residential rental properties" pay more tax than owners (with the same taxable income) of other businesses making the same loss.
Example:
A business or investment looses $5,200 in a year. This loss reduces the owner's taxable income by $5,200 and their tax bill by around $1,700A "residential" rental business looses $5,200.
This loss does not reduce the owner's taxable income. Consequently this owner pays $1,700 ($33 weekly) more tax.Owners with loss making properties tend to increase their rents or discard their residential rental businesses
Tax reductions may be available if:-
1) Owners with other "residential" rental properties combine them into a "portfolio" with IRD Then losses and profits can be combined within that "portfolio". However, If the "portfolio" of "residential" rental properties makes a loss this still cannot reduce the owner's taxable income.2) Losses" are accumulated, they can be used to offset any possible future taxable "profits" the property may make.
Consequences
1) Loss making rentals are being sold and their funds invested in other places.2) More demand is made on government and charities to provide subsidised rental homes.
3) Rents rise
4) Renters lose homes
Advice for owners
Use an experienced, qualified financial adviser to guide you forward. This site aims to expose hidden issues; it is not qualified to offer individual advice.