The Taxation (Annual Rates for 2018-19, Modernising tax Administration, and Remedial Matters) Bill, was introduced into Parliament on 28 June 2018. The revenue system will be modernised to make the tax easier for individual, and the rules and processes will be simpler. 

New year - end tax obligations for individuals
The Bill proposes a number of amendments for the end of year income tax obligations of individuals and some of the processes that will be undertaken by Inland Revenue (IR). In summary, the proposed changes are:

• IR will make a pre-populated account available to each individual containing the income information that IR holds for the individual.
• IR will calculate the refund of tax to pay without the individual needing to provide any additional information. 
• Individuals will be required to provide any income information other than reportable income to IR subject to some de minimis rules.
• Individuals will be able to provide other relevant information such as deductible expenses and tax credit information to IR.
• Individuals will be required to provide or correct reportable income where they know or have reason to know that the reportable income information provided to IR is incorrect.
• And individual's tax assessment will occur when they have confirmed the tax information is complete, when IR is reasonably satisfied that the information is complete, or when IR is not satisfied that the information is complete and issues a default assessment.
• Individuals and IR will be able to make corrections to the information held where they become aware that it is incorrect or incomplete and there will be error correction processes for adjustments made before and after an assessment has occurred.
• The end of year income tax process will replace the current personal tax summary and will replace the IR3 tax return processes over time as the paper IR 3 is phased out.

The end of year income tax process changes will mean that IR provides as much information about an individual's income and tax credits as it can to form a basis for the calculation of the individual's tax position (refund or tax to pay).

Individuals will be required to provide information on their other income (income other than their reportable income) and will be able to provide information on deductions and tax credits. This additional information will be added to the individual's pre-populated account (now their adjusted account) and will become the individual's self-assessment. 

Changes for refunds and amounts of tax to pay 
The Bill also proposed a number of amendments to improve the process for issuing refunds and advising individuals that they have tax to pay or are due a refund. In summary, the proposed changes are:

• IR will calculate whether people who are not expected to be required to provide information to IR are entitled to a refund or have tax to pay
• Refunds will be paid out without individuals having to request them.
• IR will issue income tax refunds by direct credit, unless that will result in undue hardship or is not practicable.
• Amounts of tax to pay arising from withholding tax regimes where tax was withheld in accordance with the PAYE rules, or where tax was withheld at the rate corresponding to the individual's marginal tax rate, will not have to be paid.
• Amounts of tax to pay arsing from a withholding tax regime where less than $200 of income was taxed incorrectly will not have to be paid.

All of the proposed amendments are intended to come into force 1 April 2019 and to apply for the tax year-end processes for the tax year ended 31 March 2019. 

The release of an official's issues - paper entitled "Ring-fencing rental losses" was issued in march 2018. and introduced into Parliament on 5 December 2018 as a part of the taxation (Annual Rates for 2019-20, GST Offshore Supplier Registration, and remedial Matters) Bill. According to this proposal, speculators and investors will no longer be able to offset tax losses from the residential properties against their other income but can be used in future years to reduce the tax when the properties make profits or the sale of land.

Property subject to the rules (ss DB 18 AC to DB 18 AK)
The provisions of "Ring-fencing rental losses" will apply to "residential rental property", which is defined as "residential land'. However, the following are excluded from "residential rental property".

• a person's main home
• land that is subject to the mixed-used assets rules
• land that is owned by a widely-held company
• land that is identified to Inland Revenue (IR) as being taxable on sale (see below), and 
• accommodation provided to employees or other workers where it is necessary to provide the accommodation due to the nature or remoteness of the business carried on.  

Land taxable on sale
The proposed rules will not apply if the land is identified to IR as being taxable on sale. This would include land held in dealing, development, subdivision, and building businesses, and land that was bought with the intention of resale. 

the exclusion for land that will be taxable on sale will be available if either:

• the taxpayer is notifying the Commissioner of their rental income and expenditure for that property on a property-by-property basis, or
• they are notifying the Commissioner of their rental income and expenditure on a portfolio basis and all of the properties within the portfolio are on revenue account

Portfolio basis by default with property-by-property application by election
The proposed default position is that the loss ring-fencing rules will apply on a portfolio basis, which means the investors are able to offset deductions for one rental property against income from other rental properties.

Use of ring-fenced deductions

Portfolio basis
if the portfolio basis is used, ring-fenced residential property deductions will be able to be offset against: 

• residential rental income from future years (from any property)
• income on the taxable sale of any residential land, to the extent of reducing the taxable gain on the sale to nil. 

property-by-property basis
If the property-by -property basis is used, ring-fenced deductions relating to the property will be able to be offset against:

• residential rental income from future years (from that property)
• income on the taxable sale of that property, to the extent of reducing the taxable gain on the sale to nil. 

Unused deductions
Generally, any remaining unused deductions will continue to be ring-fenced and carried forward to be used against any future residential rental income or income from other residential land sales
However, it is proposed that ring-fenced deductions will be released in certain situations. 

Transfer between companies in wholly-owned group
Ring-fenced deductions are allowed to be transferred between companies in a wholly-owned group according to proposed s DB 18AI. And any remaining deductions will be carried forward and will remain ring-fenced. The transferred deductions will remain ring-fenced until offset against residential rental income or residential land sale income. 

Interposed entities -residential land-rich entities
The interposed entity rules will apply for interest on borrowings to acquire an interest in an entity if, for a particular income year, the entity is a "residential land -rich entity" - which will be where over 50% of the entity's assets are residential properties. 

where the land - rich threshold is met, part or all of the interest on the borrowings will be treated as residential rental property expenditure, and deductions will be ring-fenced. 

The proposed new rules are intended to apply from 1 April 2019 for the 19/20 and later income years. They will not apply to a deduction a person is allowed for a prior income year.












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