Rental losses can be offset against other income either at the year end when tax return is filed or during the year.
If it is done at year end, the owner must file a tax return and show the losses there, then taxable income will be reduced. Any overpaid PAYE will be refunded as an annual lump sum.
If it is done during the year, the refund can be received fortnightly as part of the fortnightly pay. The owner must complete IR23BS available on IRD’s website to receive a special tax rate certificate. This special tax rate should be adjusted if any property is sold during the year to avoid large tax bills at year end. The owner of the business still needs to complete tax return at the year end. If the actual loss is equal to the estimated loss, no further refund is provided. If the actual loss is less than the estimated loss, tax payment may be required.
From 1 April 2019, rental losses are ring-fenced to be carried forward to offset against future taxable income from property instead of offsetting against income. For example, the carried forward amount may be used to offset the tax payable amount if the property is sold within 5 years of purchasing. Another example may be if more than one property is owned, the carried amount can be used to offset income from other rental properties.