Ring-fencing of Losses on Rental Properties

The government has just introduced their long signaled changes to rental property tax into Parliament.

What Changes are proposed?

For years, residential property investors have been able to use losses on rental properties to offset their personal tax. Residential rental properties are often “negatively” geared. This means that the expenditure exceeds the income, resulting in a loss. The government proposes ring-fencing these losses and preventing investors from using any losses against their personal tax.

How will it work?

At its most basic, any losses will be carried over to the next income year.

No PAYE refund will be issued to the investor. The losses won’t be able to be utilised until the investment makes a profit. The ring-fencing will apply on a portfolio basis, so if an investor has more than one property, losses on one can be offset against profits on another. Interestingly, there is the option to opt out.

Investors can ‘elect’ to have any losses ring-fenced on a property by property basis. This could be useful for portfolio investors if the ring-fences losses on a property are likely to exceed any gain when sold, however how this could be foreseen is anyone’s guess.

For many investors, it will take some time to pay down a mortgage before the investment becomes profitable. The ring-fenced losses won’t be utilised until quite some time in the future. What can losses be utilised for? Future residential income and; Any income on the sale of residential land e.g. any capital gain caught under the Bright-line test rules. Losses can’t be used to offset income from other investments.

What about Trusts?

Trusts will also have losses on residential properties ring-fenced. These losses won’t be able to be applied against other income, such as shares or managed funds.

How does it impact Look Through Companies?

Losses will no longer flow through to the shareholders automatically to generate a refund. Losses will be allocated to the shareholders to be used against future profits from residential properties.

And Closely-held Companies?

Losses will be ring-fenced in exactly the same way. However, the shareholder continuity rules will apply when a shareholder reduces their shareholding. This means that the losses can be forfeited, often quite unintentionally. Where there is more than one company in a group, the losses will be able to be transferred to another company, but only if the companies in the group have identical shareholder(s) i.e. they are wholly owned.

What property is excluded?

A taxpayer’s main home if they are renting out part of it; Mixed-use assets as there are already specific rules on these; Any property that was bought from the outset with the intention of resale; Certain accommodation provided for employees, and: Property owned by ‘widely-held’ companies (e.g. 25+ shareholders).

When is it intended to take effect?

Assuming that the bill passes through all stages in Parliament unchanged, the legislation will come into force from 1 April 2019.

The bill is now in Select Committee. Submissions close on 28th February 2019.


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According to the Government Release by Hon Phil Twyford on  27th August 2018.

We have collated a summary of the changes and a downloadable Q&A document which attempts to answer some of questions around the important changes that have been proposed.

The Residential Tenancies Act 1986 (RTA) regulates New Zealand’s rental market.



The Healthy Homes Guarantee Act

What is the bill about?

Read the Act Online here

This bill amended the Residential Tenancies Act 1986. The Ministry of Business, Innovation, and Employment (MBIE) will set heating and insulation standards that landlords will be required to meet.

Read the Residential Tenancies Act 1986 on the Legislation website

What does the bill mean?

Landlords already had obligations to meet for properties they rent out. This bill specifies and enforces standards that ensure warm and insulated homes.

The requirement to meet the standards will apply to all new tenancy agreements within a year of the Act coming into force.

As tenants leave and change rental homes overtime, most tenancy agreements will need to contain the requirement within five years. At that point, all residential tenancies must meet the standards.

Who might this affect?

  • People who rent their homes
  • Landlords
  • Property managers 

How the bill became law

The Healthy Homes Guarantee Bill (No 2) was introduced as a member’s Bill on 15 October 2015.  It had its first reading on 4 May 2015. The Government Administration Committee made its report on the bill on 29 June 2016. It had its third reading on 30 November 2017.

What now for Landlords?

The law will require landlords to guarantee that any new tenancy from 1 July 2019 must be either properly insulated or contain a heating source able to make the home warm and dry.  There will also be a minimum requirement for heating, which Labour has indicated will be in the form of heat pumps. All tenancies must meet the new standards by 1 July 2024.

"This law enables the Government to set standards for rental housing quality. The Healthy Homes standards will cover heating, insulation, ventilation, draught stopping, drainage and moisture. Many landlords will already meet these standards and will not have to change anything. For those that need to upgrade their properties, government grants for installing heating and insulation will be available." Says Housing Minister Phil Twyford.

The standards for insulation and heating will be set by MBIE within six months of the bill being enacted. Once these are established, the requirement to meet the standard will be one year for any new tenancy agreements. All tenancy agreements will be required to adhere to the standards within five years.

What had been initially proposed has now been re-written under section 138B – Healthy Home Standards. Some changes include a standard for the indoor temperature that can be reached and moisture levels to be minimised in houses, along with levels of insulation and heating sources in a rental property which were already known.

As predicted this is just the beginning of a whole load of new landlords requirements. On the flip side, this is great for landlords who regularly maintain and look to make improvements to their properties – you are already on the way to ensuring your one step ahead of the Healthy Homes Bill.

The fines for landlords not meeting their obligations has increased to $4,000 maximum penalty. Do you have time to study and learn the new Act? At Quinovic Mt Eden, as a Professional Property Management Company working alongside you to help manage your asset - learning and passing this information onto you is what we do.