It is currently relatively common for “mum and dad” property investors to own rental properties in the name of a Look Through Company, and then off-set tax losses from such residential investment properties against other income, to reduce their tax liability.  These losses often arise due to interest payable on mortgages on rental properties. 

There is a current proposal to stop property investors from being able to offset such losses to reduce their tax liabilities.  These proposed changes are being referred to as “loss ring-fencing”. 

Details on the proposed changes:

  • This “ring-fencing” will apply to residential properties only (including overseas residential properties).  
  • A “main home” will be excluded from “ring-fencing”. 
  • The rules will apply to individuals, trusts, companies (including Look Through Companies) and partnerships.
  • The intended changes are likely to commence at the start of the 2019/2020 tax year.

These changes, if enacted, are likely to have a large impact on many owners of residential rental properties.

Unlike what is happening with the extension of the “bright-line” test, the Revenue Minister has stated that this ring-fencing proposal will go through the usual Generic Tax Policy Process.  This means there will be a consultation period and opportunity for submissions from affected parties.

Submissions for this proposal closed on 11 May 2018 and we expect to hear more soon.  We will keep you informed as to progress.