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Labour has announced some major shakeups in the New Zealand Government's first Budget for 2018 - including tackling issues such as health, education and especially housing.
The government are now beginning their move to eliminate negative gearing by ring-fencing tax losses arising from rental properties, and therefore preventing those losses from being offset against other income.
Finance Minister Grant Robertson has announced that Labour will put an end to negative gearing "before the year's up." It is expected that any losses generated from negative gearing will be ring-fenced to each individual property as opposed to allowing the use of losses to offset tax on profitable properties.
The finalised Labour's Budget for 2018 will be released on May 17th 2018. This will mark the beginning of Labours' new policies in the housing industry which may target a majority of the middle income landlords and property investors owning several properties who are using the negative gearing strategy. This is a very common practice used by Australian and Kiwi property investors and landlords.
Research has shown that nearly 62 per cent of people who use negative gearing were on taxable incomes of less than $80,000 in Australia alone.
What is negative gearing?
Negative gearing is basically when the cost of an investment is greater than the income earned from it. For rental properties, costs can include interest payments on a loan or mortgage, and expenses such as maintenance, rates, water, insurance, depreciation, accountants and property manager fees.
If a property owner has a loss on their investment, they can claim a tax deduction and offset that loss against income earned elsewhere.
Negative gearing is primarily used by solo individuals such as self-managing landlords and property investors who may be financially savvy, allowing them to claim tax deductions within a tax year. According to Inland Revenue figures, investors used this tax loop hole to avoid paying $149 million in tax in 2015.
The current ‘tax loophole’ allowed property speculators to reduce their overall taxable income, which provides an unfair advantage in comparison to people trying to buy their first home. Labour wants to put restriction on losses generated from negative gearing which they believe may marginally impact property speculators, as it may make properties less affordable as an investment and hopefully minimise the accumulation of properties by investors.
In addition, the tax working group is currently also looking into potential income tax, to come up with recommendations to be put to the public.
The intention is to improve the balance, structure and fairness of the tax system, but with a primary focus on addressing the imbalance of taxation on gains from speculation in property and income from other sources. However, Mr Robertson says those changes "wouldn't come into force until 2021". With these up coming changes it is now more important as ever to update and organise your tax forms. You can use Kitt to manage your portfolios books online.
Other Labour Housing Policies - Healthy Homes Guarantee Bill
This new bill (that was passed at the end of last year), now means that landlords and property investors are responsible to ensure that rental homes meet the new minimum standards. These include minimum standards for insulation, heating, ventilation and drainage in rental homes.
The Healthy Homes Guarantee Bill (No 2) will commence on 1 July 2019
All residential tenancies must comply with the regulations within five years of the Healthy Homes Guarantee Bill (No 2) commencing
Earlier compliance dates may be prescribed by the regulations in some circumstances.
With all these changes coming into the real estate industry, for landlords and property investors, staying compliant means keeping up-to-date faster with new laws, your finances and your books!
And if you are a serious investor, you need to make sure you are complying with your legal obligations, as well as making sure your books are up-to-date.
There are resources such as the checklist on the tenancy services website, which can guide you along the right path.
As for making sure your books are in check so this financial year transitions smoothly for your portfolio, there are many software tools available.
Kitt helps landlords and investors to keep up-to-date and accurate records of their portfolio, it's tenancies and tenants, as well as keeping books in order without having to be an accountant.
With Kitt you can spend less time checking rent, and more time growing your portfolio!
Kitt is a digital property management platform for self-managing landlords and property investors. Covering everything from Checking rent, manageing your books, keeping your records and much, much more.
Come and check out what Kitt’s all about.