Tax Tips Ring Fencing Rules

The ring-fencing rules for residential rental properties came into effect on 1 April 2019 (2020 income tax year).

Under the ring-fencing rules there are three options

• Portfolio basis – you can use the deductions for one property against the income from another property in the portfolio
• Individual basis – you cannot use the deductions from one property against any other income from another property
• A combination of portfolio basis and individual basis

Portfolio basis
Calculate your income and deductions (expenses) across a residential portfolio. It includes all residential properties in the portfolio from the beginning of the income year you had the first residential portfolio until the end of the income year you dispose of the last property included in the portfolio.

You can add new and existing properties into this portfolio if you change your mind down the line, however once you use portfolio basis for a property you must continue to use the portfolio basis. If you use the portfolio basis, you must continue using this basis so long as there are still properties in the portfolio.

Individual basis
Individual basis means you apply the rules to a single property separately, i.e. deductions from the property can only be offset against income from the same property.

Ring-fencing rules do not apply to the following:

• Your main home
• Any property that is caught under the mixed-use asset rules such as a holiday home rented on AirBNB
• Farmland
• Business premises
• Property that is taxable under other tax rules regardless of when sold.

Contact us today if you need help with your Rental Investment taxes.

Note – These tax tips are of a generic nature. If you require clarification or assistance with the application to your business, we are happy to assist.

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