Act Proposes Reversing Rental Tax Rule to Ease Landlord Costs

UPDATE - follow-up to Act pledges to remove loss ring-fencing rule to reduce residential property investors' tax bills by $300m a year: Act leader David Seymour has announced a plan to scrap the rental loss ring-fencing rule for both existing homes and new builds, while keeping existing ring-fenced losses under current rules.

The Proposal

The policy lets residential property investors deduct rental losses straight away from all income sources, including their regular wages and salaries. Under the Labour-led Government in 2019, ring-fencing rules were brought in so investors had to carry rental losses forward instead of offsetting them immediately. Seymour argued the change will lower costs for landlords, making it easier to pay for essential repairs and ultimately helping renters. He also stated that sole traders and commercial property investors can already offset losses against personal income, meaning this proposal creates a level playing field.

Economic Impact

Act estimates the policy will cost the Crown $246 million in its first year, with costs climbing to $303 million by the fourth year. These projections use Budget 2018 data adjusted for growth in the overall economy.

Context

When the ring-fencing policy was first created in 2018, Inland Revenue and Treasury warned that negative gearing allowed property investors to get tax subsidies on mortgage costs and outbid regular owner-occupiers.