Rental income - new ring-fencing rules

The rules for reporting rental income have changed from the 2019-2020 income year.  This means that you can’t offset losses on your rental properties against other income and new rules apply to deductions claimed for residential properties.

Residential property deductions will now be ring-fenced, meaning that they can only be used to offset income from residential property.

This means that the residential property deductions you claim for the year cannot exceed the amount of income you earn from the property for the year. Any excess deductions must be carried forward from year to year until they can be used. You cannot use excess deductions from your residential property to reduce your other income, such as salary and wages or business income, which would result in a reduced tax liability.

You can still offset costs against other affected properties and excess deductions can be carried forward to future years.

Tailored Tax Code:

If you have a tailored tax code (previously known as a special tax code) or certificate of exemption for rental losses, you may have a tax bill at the end of the this income year.  You will have until 7th February 2021 to pay, with standard late-filing penalties and interest to apply after this date.

If your tailored tax code relates specifically to rental losses, you will need to contact IRD to discuss your situation and avoid further debt.

There are a handful of excluded properties, including your main home, farmland and a few other properties.

Find out more at https://www.classic.ird.govt.nz/campaigns/2019/ring-fencing-residential-rental-deductions/ or download this PDF document below.