Govt moves against negative gearing
Negative gearing is where a rental property owner runs a rental at a loss and uses the loss to get a refund on tax paid for his or her day job.
The Government is seeking to “ring fence” losses from rental properties to ensure that we can no longer use those rental losses to reduce our “other” taxable income (wages, salaries, business income), and in turn, reduce our tax payable.
The Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Bill introduces ring-fencing allegedly “to make the system fairer”.
The bill passed its first reading and the submissions deadline is February 28, 2019.
The total number of rental property owners who declared a loss on rental property earnings in the 2016/17 tax year was 116,000, according to Inland Revenue.
The average loss declared by each owner was $7138, and that includes both individual and non-individual (trusts, partnerships and companies) taxpayers.
Before the proposal went to Cabinet, 104 submissions were received, a whopping 84 percent of which opposed loss ring-fencing and highlighted a number of problems, according to a Cabinet paper dated June 18, 2018. These problems were:
- Increased rents, possibly 10 percent, because of increased costs for owners and reduced supply of rental property.
- Increased accommodation supplement costs for the Government.
- Discriminatory treatment of rental property owners who would be treated differently from other taxpayers.
- Deferred repairs which would leave rental stock in poorer condition.
- A short-sighted move by the Government that depends on the private sector for housing that it cannot provide.
It’s decision time for negatively-geared owners many of whom will have to sell, Mr Butler said.
But it is also decision time for the Government that may unwittingly create a further shortfall of rental properties by not listening to advice.