Ring-fencing rules
If your rental makes a loss, you can’t offset that loss against other income.
If your residential rental property makes a loss, you can’t offset that loss against other income (e.g. against salary or wages, or business income).
Don’t worry — you won’t lose the losses, they can generally be carried forward and offset against residential property income in future years until they have been fully used.
Investors can choose to apply the residential property loss ring-fencing rules on a portfolio basis or on a property-by-property basis.
If you own multiple rental properties you should talk through the options with your accountant and confirm the preferred method for your own unique situation.
Bright-line Test Rules Reminders
From 1 July 2024, the bright-line test for certain residential property was restored to two years.
What matters more this time around for the bright-line test is the end date which is when you enter into a binding agreement to sell the property and ensuring you have owned the property for at least two years from this date.
The bright-line test applies to property in New Zealand and overseas.
Sale profits from bright-line sales are taxed at your relevant tax rate. There can be different rules depending on ownership so you need to talk to your accountant about your situation.
The bright-line test start date begins on the property title registration date. There are also other rules such as if you're buying off the plans to consider.
There are exceptions and exclusions for the bright-line test, such as the main home exclusion or sales to associated parties.
Bright-line is complex and you should get expert advice before considering a sale of your property.
The Intention Test
This test looks at your intentions at the time of purchase. Generally, if your intention is re-selling at some point for a gain, then that gain may be taxable.
This applies to both residential and commercial property, so you need to think about your intentions when buying a property and tax implications.
Be careful taking tax advice from parties who are not property experts. Seek expert advice from a person who understand property.
How to choose an accountant for your rental portfolio
Finding the right accountant is more than just checking credentials — it’s about building a relationship with someone who understands your goals.
It is a business relationship. Choose someone who you get along with and provides clear communication and who you feel comfortable talking to.
Book a meeting and talk through your situation. A great accountant will answer your questions in a way you can understand.
Look for an Accountant who understands rental properties. Ideally, you want to find an Accountant who own’s rental properties themselves and is immersed in the investment property industry and associations such as New Zealand Property Investors Association (NZPIF) and your local Property Investors Association.
If you need help with your tax return or have a question about accounting or property tax, book a free consultation with Shortland Chartered Accountants here.
This article is for general information only. You should always seek personalised, professional advice before acting on any of the material.
