Ring Fencing Update

7 December 2018

 

Ring Fencing Update
 


Yesterday (5th December), The Taxation (Annual Rates for 2019-20, GST Offshore Supplier Registration and Remedial Matters) Bill was introduced in Parliament:  http://taxpolicy.ird.govt.nz/news/2018-12-05-tax-bill-introduced
 
The Bill contains other measures including ring-fencing losses on residential rental properties!  Obviously, this is very important to property investors, and not just “other” measures.
 
At this stage, the legislation is just draft, but it does give a little more information that we can start working with.


 
Key points are:
 

  • For the 31/3/2020 tax year, or from 1/4/19 for most rental property owners.  This is quicker than some initial indications and it will not be phased in over a number of years.
  • Applies to “residential land”, which includes bare land which could have a residential dwelling built on it – Basically residential rental properties.
  • Does not include:

                  - Farms

                  - Commercial property

                  - Main home

                  - Holiday homes with mixed use

                  - Trading properties.

  • Losses would carry forward and could be offset against future rental profits (could be from a sale).
  • Specific rules to make it harder to structure around (interest ring-fenced where borrowed in parent entity).

 
 
Important things to consider

  • Maintenance coming up.  It might be beneficial to complete before 31/3/19.  Especially for bigger items like painting, new bathroom vanity, toilet, shower, kitchen cupboards.
  • Portfolio or property-by-property basis – We will put more information out about this over the next few months and when the election is required.
  • Basics – how do you turn your rentals from negative to positive cash flow?  Some possibilities:

- Review rent

- Break mortgages to get lower rates

- Add value

♦ Subdivision?

♦ Minor dwelling?

♦ Renovations to get more rent?

♦ Garage into sleepout?

♦ Extra bedroom?

- As above, do preventative maintenance early, before ring-fencing comes in,  rather than later once it is in.

  • Review your tax structure

 
 
The 1st of April 2019 is going to come up very fast.  So, if you have concerns or questions, I suggest you book a meeting with me ASAP to discuss the implications of ring-fencing for you, and what we can do to improve your situation.  Email This email address is being protected from spambots. You need JavaScript enabled to view it. , or call Mareese on (07) 839 2801,  or if you want to organise an online video meeting with me, use this link to see the available times and you can book the time that suits you best:  https://coombesmithpropertyaccountants.as.me/PropertyAdvisoryMeeting3CXOnline
 
If you are an existing client of Coombe Smith, this special Property Investors offer of a meeting and questions can be a great option.  Click here to see full details of the Property Investors Offer.
 
 
If you make a profit from rentals – no issue!
 
We will also be keeping you updated!


Kind regards
Ross Barnett 

 
 
 
 

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