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Ring-fencing residential rental property losses

The inability to offset residential rental losses against salary and wages (and other income) is one step closer to reality after the Government released an issues paper today. In a nutshell –

• Losses arising from rental properties will not be able to be offset against the taxpayer’s other income. These losses often arise due to interest payable on mortgages on the rental property.

• The ring-fencing will apply to residential properties only (including overseas residential rental properties)

• The person’s main home will be excluded from ring-fencing, as well as properties that are held on revenue account (i.e. subject to tax on sale because of a land dealing, development or subdivision business) and properties that are subject to the mixed-use asset rules

• The ring-fenced losses can be carried forward to future years and offset against future rental income or against future taxable income on the sale of the property

• Losses will be able to be offset on a portfolio basis i.e. ring-fenced losses from one property can be offset against income from another rental property

• The rules will apply to individuals as well as trusts, companies (including LTCs), and partnerships

• The rules are intended to kick in from the start of the 2019/20 income year.

The Issues Paper can be found on Inland Revenue’s tax policy website: http://taxpolicy.ird.govt.nz/

Submissions close on 11 May 2018.

GST and Body Corporates

Minister of Revenue Todd McClay has announced the Government’s intention to amend the GST Act to confirm that Body Corporates will not be required to register for GST and file returns.  The Government’s view is that this will align Body Corporates with the rules for other residential property owners.  For more information see http://taxpolicy.ird.govt.nz/news/2014-06-06-govt-seeks-feedback-proposals-clarify-gst-treatment-bodies-corporate#statement.

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In an increasingly complex tax world, how do you stay out of trouble?

Tax headlines recently have reflected lengthy tax disputes, many which have been lost by the taxpayer. Inland Revenue has increased its focus on tax audits and this can leave many companies feeling nervous about their practices. Are you next? Read more

Tax Avoidance – it all comes down to statutory interpretation

In recent times, we have seen several tax cases being lost by Taxpayers. Analysing the judgments, I believe we have seen a fundamental move when dealing with tax avoidance – a move back towards statutory interpretation. The Newton and Elmiger cases are the policy basis for our anti-avoidance rule as they focus on statutory interpretation and I believe the courts are showing a move back to this ordinary approach (as can be seen in the Banks cases).

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RAP on RAP: marching to a different beat?

Received anonymously:

The Rewrite Advisory Panel (RAP) was established to advise rewriters of the Income Tax Act 1994. The Income Tax Act 2004 saw the RAP becoming the arbiter on possible unintended legislative changes and the Income Tax Act 2007 saw it becoming the overseer of the clarity of that Act (see: www.rewriteadvisory.govt.nz)

In 2009, a submitter raised with the RAP the definition of ‘revenue account property’ (the second RAP referred to in the title but, to avoid confusion, I do not use that acronym in this note). The submitter said:–

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