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"Ring-fencing Tax"
"Normal" tax
People often have "taxable incomes" from different sources
(E.g. wages, benefits, interest, dividends, business activities).Tax is payable on the total of these "taxable" incomes
If any income source makes a loss this reduces the total taxable income (and tax payable).
"Ring-fencing Tax"
Since 2022 losses from "residential" rental businesses are stopped from reducing "taxable incomes" when their businesses make a loss. Therefore, home renting investors pay more tax than other business investors with the same total taxable income ".
Example :
IF a normal renting busines looses $5,200 in a year. This loss reduces an owners total taxable income by $5,200 and reduces income tax by around $1,700 p.a. or $33 weekly)IF a "residential" (home) renting business looses $5,200 this loss does NOT reduce taxable incomes. Consequently, "residential" rental business owners pay $1,700pa more tax ($33 weekly) than other business owners with the same income This extra tax payable by home lenders is "Ring-fencing tax"
Consequences of "ring-fencing" tax
Fewer rental homes available
More demand for government rentals
(Each ooses around $700 weekly)Increased rents.
NOTE: Ring-fencing tax costs may be reduced:-
IF owners with multiple properties, can combine them all into a "portfolio" with IRD. With this facility, taxable incomes from the profitable properties are off-set by the loss making properties.
IF annual losses are recorded and accumulated, they can be used in the future if the property later produces a taxable income.
Note:-
Owners should seek advice from an experienced, qualified professional accountant or tax advisor on whether to continue with long-term renting or to sell "residential" rental properties and find other more profitable investments with lower risks and taxes.