Act Party Proposes Tax Rule Change to Benefit Rental Investors by Millions

The Act Party is promising to remove the loss ring-fencing rule for residential property investors, a policy change estimated to reduce investors' tax bills by up to $300 million a year.

What Happened

Under the proposed policy announced by Act leader David Seymour, residential property investors would once again be allowed to deduct rental property losses from all their income, including wages and salaries. The previous Labour-led Government introduced the loss ring-fencing rule in 2019 to make the tax system fairer, and the current coalition Government kept it in place. Before this rule, investors could offset rental losses against other income sources immediately. Under Act's proposal, this ability would return for both existing homes and new builds, though losses already ring-fenced under the old rule would stay subject to the current setup. Act expects the policy to cost the Crown $246 million in its first year, rising to $303 million by the fourth year, based on adjusted Budget 2018 figures.

Arguments And Background

Seymour argued the change would make property investment more attractive and ultimately benefit renters by lowering the costs of providing housing. He stated that delaying tax deductions until a property becomes profitable makes it harder for landlords to carry out essential repairs when cash flow is tight. Seymour also defended the move as a way to make the tax system more consistent, noting that sole traders and commercial property investors can already offset losses against personal income. In contrast, when Inland Revenue and Treasury advised on the 2019 rule change, they warned that allowing negative gearing helped investors use reduced tax on other income to outbid home buyers. They noted that 40 percent of taxpayers with residential investment properties reported rental losses at the time, receiving an average annual tax benefit of $2000.

Context

Tax rules surrounding residential property investment often spark fierce political debate over housing affordability and fairness between landlords and regular home buyers. Changes to deductions directly alter the financial calculations for property owners, influencing how they price rentals and bid in the housing market.