Below we outline some of the tax changes that the new government is likely to phase in. These have not been passed into law yet and will keep you updated when they do.
No new tax cuts from 1 April 2018 (that National previously announced).
We mentioned in our June 2017 Newsletter about Nationals tax cuts that were being introduced on 1 April 2018. These were going to result in the average New Zealander earning $52k pa to be $20 per week better off.
These tax cuts are not likely to happen under the Labour government. Labour will however increase the working for family’s packages, but are yet to release the specific details.
Bright Line Test Extended to 5 Years
The Bright Line Test results in residential property acquired and disposed within two years to be subject to income tax unless an exemption applies. Labour will extend this from current two years to five years.
We believe this will be implemented from 1 April 2018 and not be retrospective.
Ring Fenced Property Losses to Income Earned from Property
Currently, if an owner of a rental property makes a loss of $5k a year, and has employment income of $75k, the individual would be taxed on total income of $70k.
Ring fencing property losses would mean that the $5k loss from the rental property is unable to be offset against other income and only deductible from future property profits. Negatively geared (expenses are more than the rent received) property owners will no longer receive tax refunds. We believe this may be phased in, over a five-year period.
In our opinion the result of both the increase in bright line duration and the ring fencing property losses (along with new immigration rules proposed to reduce net migration) is going to have an adverse effect of the property market. This is to try and take the heat of the housing market and make housing more affordable.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.