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No more negative gearing

The end of negative gearing is nigh as the Government launches its proposal on changing the rules around the ring-fencing of rental losses.

Thursday, March 29th 2018, 1:30PM

by Miriam Bell

Property Institute chief executive Ashley Church

It has been a busy week in the Government’s crusade to crack down on those who benefit from property investment with the bright line test extended and a ban on letting fees announced.

Now, attention has turned to the ring-fencing of rental losses and today Inland Revenue (IRD) released an issues paper on the proposed changes.

The proposal is that property speculators and investors will no longer be able to offset tax losses from their residential properties against their other income – like salary, wages, or business income - to reduce their income tax liability.

The IRD paper says that currently investors have part of the cost of servicing their mortgages subsidised by the reduced tax on their other income sources, helping them to outbid owner-occupiers for properties.

“Rules that ring-fence residential property losses, so they cannot be used to reduce tax on other income, is intended to help reduce this advantage and perceived unfairness.”

Under the suggested changes, which it is proposed will apply on a portfolio basis, ring-fenced losses could be used in future years, when the properties are making profits, or if the person is taxed on the sale of land.

But where a property disposal is caught by one of the land sale rules, ring-fenced losses could only be used to the extent they reduce the taxable gain to nil, with any further unused losses remaining ring-fenced.

The new rules would not apply to the family home, a property that is subject to the mixed-use assets rules, or land that is on revenue account because it is held in a land-related business.

IRD proposes that the new loss ring-fencing rules will apply from the start of the 2019–20 tax year.

Revenue Minister Stuart Nash says that, currently, the persistent tax losses that many property investors declare on their investments indicate that they rely on capital gains to make a profit.

"In conjunction with the recently announced extension to the bright-line test, ring-fencing losses from rental properties would make property speculation less attractive and level the playing field between property investors and home buyers.”

Nash says the time is right to test the detail of this proposal with stakeholders, including investors, and is encouraging people to give feedback on the proposal which can be read here

"This measure would not preclude any solutions the Tax Working Group may come up with in relation to housing,” he adds.

However, investor advocates have been vocal in their opposition to the removal of negative gearing.

Property Institute chief executive Ashley Church says he is concerned about the serious unintended social consequences of the proposal.

“People, particularly Mum and Dad type investors, will be deterred from going into the provision of rental properties – because when investors start out they tend to rely on those losses to get by.

“So the proposed loss ring-fencing rules will have a substantial negative effect because they will deter people from buying rental properties at the very time that, as a country, we need more rental properties to address the housing crisis.”

Church adds that he doesn’t think the tax treatment of property should be different to the tax treatment of other assets such as shares.

Read more:

CGT by stealth 

Rethink letting fees ban 

New investors and property speculators likely to suffer under new rules 

« Rethink letting fees banLandlords top property managers for tenants »

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Lender Flt 1yr 2yr 3yr
ANZ 5.79 4.55 4.79 4.99
ANZ Special - 4.05 4.29 4.49
ASB Bank 5.80 4.44 4.69 4.89
ASB Bank Special - 3.95 4.29 4.49
BNZ - Mortgage One 6.50 - - -
BNZ - Rapid Repay 5.95 - - -
BNZ - Special - 4.10 4.29 4.49
BNZ - Std, FlyBuys 5.90 4.69 4.79 4.99
BNZ - TotalMoney 5.90 - - -
Credit Union Auckland 6.70 - - -
Credit Union Baywide 6.15 5.20 5.25 -
Lender Flt 1yr 2yr 3yr
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 - - -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.70 4.85 -
Housing NZ Corp 5.80 4.69 4.79 4.79
HSBC Premier 5.89 3.99 4.19 4.69
HSBC Premier LVR > 80% - 3.79 - -
HSBC Special - - - -
Lender Flt 1yr 2yr 3yr
ICBC 5.80 4.59 4.69 5.09
Kiwibank 5.80 4.55 4.69 4.99
Kiwibank - Capped - - - -
Kiwibank - Offset 5.80 - - -
Kiwibank Special - 4.05 4.29 4.49
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 6.10 5.10 5.45 -
Resimac 5.30 4.86 4.94 5.30
RESIMAC Special - - - -
SBS Bank 5.89 4.85 5.05 4.49
Lender Flt 1yr 2yr 3yr
SBS Bank Special - 4.19 3.95 4.49
Sovereign 5.90 4.45 4.69 4.89
Sovereign Special - 3.95 4.29 4.49
The Co-operative Bank - Owner Occ 5.75 4.10 4.35 4.49
The Co-operative Bank - Standard 5.75 4.60 4.85 4.99
TSB Bank 5.80 4.45 4.69 4.99
TSB Special - 3.95 4.19 4.49
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.95 4.69 4.79 5.19
Westpac - Offset 5.95 - - -
Westpac Special - 4.15 4.29 4.59
Median 5.89 4.50 4.69 4.79

Last updated: 2 December 2018 8:39pm

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