Like everyone landlords are facing tough times due to the fall out of Covid-19. This includes loss of income, reduced wages and business losses. One way to help soften the blow for landlords, and consequently ease any increases in rents for tenants, would be to delay the introduction of the ring- fencing law which was introduced in June 2019.
The ring-fencing law was part of the Taxation (Annual Rates for 2019-20, GST Offshore Supplier Registration, and Remedial Matters) Bill introduced by the Coalition Government. This legislation ends the ability of landlords to offset losses incurred on residential rental properties against personal income e.g. salary, wages and other income. In the past this could have resulted in a reduced taxation bill and in some cases a tax refund.
By delaying the introduction of this law until the 2021/22-year, the NZ Property Investors’ Federation (NZPIF) believes that it could ease the financial hardship of some of the 300,000 rental property owners who, like others, have been adversely affected by Covid-19. About 90% of all rental property owners only have one or two properties. Property investing is often not their main source of income and so delaying this law will help out many Mum and Dad investors.
Part of the Government’s relief package includes increasing the small asset depreciation threshold from $500 to $5,000 for the 2020/21 tax year. This is a good opportunity to bring forward buying heat pumps and insulation and to claim them as a tax-deductible expense rather than a capital expense. Making the property ready for the Healthy Homes Standards sooner rather than later will be of significant benefit for tenants. After 1 July 2021, these standards come into effect for private rentals within 90 days of any new or renewed tenancy. By 1 July, all private rentals will need to comply.
Another Government initiative is the temporary loss carry-back scheme. This scheme allows the offsetting of past years’ profits with this year’s losses and the ability to receive refunds of the tax paid in the previous profitable year. This type of help is desperately needed by private residential rental property owners as well but they have been specifically excluded from using it. Enabling them to do so, would have the added benefit of easing the pressure to increase rents.
Sure, the lifting of the Loan to Value Restrictions by the Reserve Bank for the next 12 months will help first home buyers into the market. However this is unlikely to help those already in the residential property market as serviceability requirements from the banks are often more of a hindrance than Loan to Value Restrictions.
So, all-in-all landlords have been left out in the cold. Delaying the ring-fencing losses for the 300,000 rental property owners, as well as allowing them to use the temporary loss-carry back scheme would give them more financial flexibility and enable them to assist many of their tenants.
NZPIF Executive Officer
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