This Bill is expected to be approved by Parliament in mid-late 2019, but the effective date of the ring-fencing rules would be 1 April 2019. Potential road blocks to the ring-fencing law are inconsistency with potential capital gains tax policy.
The 2019/20 Taxation Bill proposes that residential property investors will no longer be able to offset losses from rental properties against their other income (e.g. salary and wages, business income) to reduce their overall tax liability. Rather, any excess expenditure will be carried forward as property losses until there is enough income from property to utilise those losses. In other words, the losses are "ring-fenced" and can only be accessed by earning property-related income.
For those investors that have more than one property, there will be the option to apply the new rules on a portfolio basis, which is the default approach (i.e. profits from one property can off-set losses from another property provided they are owned by the same entity).
The ring fencing rules don't apply to mixed use asset properties such as holiday houses, which have their own loss limitation mechanism.
The aim of the proposed law change is to level the playing field between property speculators/investors and owner-occupiers. By stopping subsidising investors' mortgage servicing costs, the Government hopes their abilities to outbid owner-occupiers for properties will be reduced. It is also expected to generate $190 million of tax each year from the 40% of investment property owners regularly claiming losses.