Pre-Easter Tax Announcements
Happy Easter everyone. Before you go on leave, you might be interested in the following announcements
First, the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Bill passed its third reading in the House on the 27th March. This should become law next week after the Governor General has signed the Bill (the date of Royal Assent).
The key change here is that it moves the Bright-line test of 2 years to 5 years, effective for new residential purchases from the date of Royal Assent. It also has changes on employee share schemes.
RING-FENCING RESIDENTIAL PROPERTY LOSSES
Secondly, today an Official’s issues paper was released that asks for comment on a proposal to ring-fence residential rental losses. The proposal is for a commencement date of 1 April 2019 (or the commencement of the 2019/2020 tax year if you have a different balance date). Although there is a question (seeking submissions on) whether these rules should apply immediately, or phased in over two or three years.
The proposal also suggests that the losses may be able to be grouped into a portfolio of properties and offset against profits in the same group. This works where an investor has some profit making and others not. However, if all your investments are negatively geared (i.e. running at a loss) and you rely on the losses to be offset against other income such as your salary then you will not have access to those losses under the proposal. The alternative, and less favoured option, is to treat each property separately.
Many of you will appreciate that ring-fencing of losses can have both immediate and long-term implications. For example, not being able to claim tax losses annually may affect your ability to pay the mortgage, but long term may mean those losses are never accessed. This could be the case if the losses can only be offset against income from that property or from investment property income in general. If you sell your rental property and do not buy another, there will be no future rental income to have the ring-fenced losses applied against.
Properties that are taxable land business activities (e.g. property developers), the family home and those already subject to the mixed-use quarantining rules should not be affected by these proposals.
There will be plenty of anti-avoidance measures to prevent structuring and debt loading to get around the proposed rules.
Submissions close on 11 May 2018. Have a read of the Issues Paper. At 16 pages it is quite short and easy to read. Those of an artistic bent may be interested in the Stickmen and the House diagrams (without windows or locks – clearly didn’t grow up on Play School)
Posted: Thursday 29 March 2018