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Question :
HiWe are just after some advice around the governments(IRD) Loss Carry Back Scheme.We have rental properties and for several years have rented the dwellings permanently but have also operated seperate Airbnb(x3) businesses as well.We have had advice from accountants in the past and have always filed our own IR3 and IR3R tax returns.Following advice, we outline (on IR3R) all rental income and Airbnb income separately and subtract all expenses, arriving at our Net Rent for the year. This figure is then divided 50/50 and shown on my wifes and my annual IR3 return.We are definitely positively geared, each year filing the profits we earn and paying provisional tax. This was also the case last financial year.This year our Airbnb income will be severely impacted and that will run at a loss. From what we’ve read, we could claim our loss back against our last years profit.We are a bit confused whether this is worthwhile for us as our permanent rental properties will still make a profit this year. So we are unsure if there is any benefit in1. claiming back our projected Airbnb loss against last years profit(the scheme),  vs2. applying our Airbnb loss against our rental profits in this coming years IR3RThe only difference we see is that we could access funds early (via the scheme) but we would then effectively pay that back by not being able to apply that loss to this coming years rental profit.Our initial thoughts were that there is no benefit for us to claim thru the scheme but when we hear governments statements that the scheme is expected to cost billions, we are just wondering if we have missed something.Could someone please advise if we are looking at this correctly.Thanks so much and regards

Question submitted 09/05/20 @ 12:42pm
Industry: Funding & Finance
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  • Hi, the loss carryback scheme is quite complex so what follows isn’t a substitute for professional tax advice, but I hope it’s helpful nonetheless. Firstly, in order to do a carryback there has to be an overall loss in an income tax year. If you still have positive net income when you include both your airbnb income and permanent rental income, you wouldn’t be eligible for carryback. Secondly, it’s my understanding that the carryback applies to businesses only, residential rental property deductions are still ringfenced. So, if you are likely to still be in a net profit position for the year ending March 2021 (albeit less income), your best bet would be sit tight for now and see how the year progresses. If you are provisional tax payers it might be a good option to estimate down your provisional tax payments this year based on how your projected annual income is looking at each provisional tax payment date (August, January, May). The scheme as a whole seems to be positioned primarily for SME businesses who have paid provisional tax during the 2020 year and are heavily impacted by COVID-19 to the point that they are reasonably certain they will make a loss for the 2021 tax year.

    Hi Warren, thank you very much for your advice. Yes, we couldn’t see any benefits for our particular situation but thought we may have misread the scheme when government stated it will cost billions.
    Thank you again.

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