Around $300,000,000 a year in tax relief for landlords: will tenants benefit? ACT proposal sparks housing policy debate

Should losses on a rental property be allowed to offset salary income? A tax reform proposed by the ACT Party has once again put the interests of landlords, tenants and first-home buyers at the centre of New Zealand’s election debate.

On 14 October, ACT announced a proposal to abolish loss ring-fencing for residential rental properties, allowing investors to offset eligible tax losses from rental properties against other taxable income, such as salaries.

According to ACT’s official estimates, the policy would reduce government revenue by NZ$264,000,000 in its first year, rising to NZ$303,000,000 in its fourth year. Landlords would receive tax relief sooner, but whether that relief would deliver more homes and more affordable rents remains the central point of contention.

How could rental losses offset salary income?

Under current rules, if deductible expenses for a residential rental property exceed the associated income, the excess generally cannot be offset against other income, such as wages and salaries. Instead, it must be carried forward to offset eligible residential property income in future.

If an investor uses a portfolio calculation method, losses from one rental property can offset income from another rental property in the same portfolio, but still cannot directly offset salary income.

For example, an investor earns an annual salary of NZ$100,000 and incurs a tax loss of NZ$10,000 on a rental property that year. Under current rules, their taxable salary income remains NZ$100,000, with the rental loss carried forward for future use. Under ACT’s proposal, the loss could immediately offset their salary, reducing taxable income to NZ$90,000.

This reduces taxable income; it does not mean the government directly refunds NZ$10,000. The actual tax saving depends on the individual’s applicable tax rate and specific tax circumstances.

ACT says the new rules would apply to both existing and newly built homes, but only cover losses incurred after the policy takes effect. Losses already carried forward would continue to be treated under the existing rules.

Interest is already tax-deductible, so why make another change?

Mortgage interest deductibility and offsetting rental losses against other income are separate rules. From 1 April 2025, New Zealand restored 100% deductibility for interest on residential rental property loans that meet the general deduction requirements. However, rental losses arising after expenses are calculated remain subject to loss ring-fencing.

Building on the restoration of interest deductibility, ACT’s proposal would also allow investors to offset rental losses against other income, such as salaries, bringing tax relief forward. For investors making rental losses who also have other taxable income, the most immediate effect would be improved current cash flow.

ACT: lowering landlords’ costs can also help tenants

ACT leader David Seymour argues that the current system prevents investors from making full use of loss deductions when money is tightest, requiring them to wait until their properties become profitable before receiving the associated tax benefits.

He says earlier tax relief could make rental investment more viable and ease the pressure on landlords paying for necessary repairs. Drawing comparisons with sole traders and commercial property investors, he also argues that residential rental properties should receive more consistent tax treatment.

ACT links the proposal to increased housing supply: lowering the cost of providing rental housing could encourage investment and give tenants more choice.

However, lower costs for landlords do not necessarily mean rents will fall in step. Whether tenants benefit also depends on local housing supply and demand, market competition, and whether investors use the relief to add housing or improve properties.

Will the relief add new homes or fuel competition for existing ones?

A commentary by B2B News argues that, since ACT presents the proposal as housing policy, it should be judged by the additional housing it delivers.

The issue is that the current proposal applies to both newly built homes and existing properties, without requiring investors who benefit to increase the number of homes.

Investors funding new rental homes can increase the total housing stock; buying existing homes mainly changes their ownership and use. Converting an owner-occupied home into a rental may increase rental supply, but does not increase the total number of homes in the market.

The relief could therefore encourage investment in new builds, but could also increase investors’ willingness to buy existing properties. Its eventual effects will need to be tested against actual data.

The commentary recommends allowing immediate loss deductions only for eligible newly built rental homes, or setting a time limit on the relief, while also publishing information on who benefits and assessing the number of additional rental homes.

The commentary argues that, to make tax relief contribute more directly to housing supply, ACT could consider targeting it at eligible newly built rental homes or setting a time limit, while publishing information on who benefits and regularly assessing the number of additional rental homes. ACT’s announced proposal currently includes none of these conditions.

Two views of ‘fairness’, two sets of criteria

ACT emphasises fairness between different business activities: eligible losses from other businesses can offset income, and residential rental investment should receive similar treatment.

According to the NZ Herald, however, when the Labour government introduced loss ring-fencing in 2019, its focus was fairness between investors and owner-occupier buyers.

Owner-occupiers cannot offset expenses associated with their own homes against salary income. If investors can use rental losses to reduce tax on their salaries, they may gain an additional advantage in the costs of buying and holding property.

The report cites a regulatory impact assessment by Inland Revenue and the Treasury from 2018, which found that around 40% of taxpayers with residential investment properties reported rental losses at the time, with an average annual tax benefit of approximately NZ$2000. These figures reflect the policy context of that period and should not be treated as a picture of the market in 2026. The debate therefore concerns not only landlords and tenants, but also how the tax system balances business costs, housing investment and opportunities for first-home buyers.

How do the parties’ policies differ?

The parties have proposed different approaches to residential investment taxation and tenant protections:

Labour’s proposed capital gains tax targets relevant gains accruing after 1 July 2027 and realised on sale, with exemptions including owner-occupied homes. The Green Party’s wealth tax proposal also includes thresholds and an exemption for owner-occupied homes.

(Note: these are policy positions and election proposals, and should not all be regarded as laws already in force.)

What would around $300,000,000 a year ultimately deliver?

ACT acknowledges that allowing losses to be deducted sooner would reduce government revenue; some losses might also never be used under the current system. The reform therefore cannot be regarded as having no fiscal cost.

For now, the proposal remains an election pledge. Whether it is implemented, when it takes effect and its final eligibility conditions will depend on the election result, government negotiations and legislation.

For landlords, the key question is how much their after-tax holding costs would fall; for first-home buyers, whether competition for homes would intensify; and for tenants, whether rental supply would grow, housing quality would improve and rents would become more affordable.

Earlier tax relief for landlords is a direct outcome the policy can deliver. Whether tenants share in the benefits will ultimately depend on how much additional housing, repair spending and rental market competition this relief of around NZ$300,000,000 a year generates.

What do you think? Would allowing landlords to offset rental losses against salary income encourage more people to invest in building homes? Or should the relief be targeted at additional rental housing? Share your views in the comments. Landlords, tenants and first-home buyers are also welcome to share their own experiences.