What change will we see to property taxation?

[fungus pudding]

But IRD already has the power to look at the depreciation claimed aganst the sale value achieved - though it seems perhaps they don't have the resources to look at this in much detail. But it is, again IMO, clearly a rort.

It's hard to see a rort. All plant and equipment in any other taxable activity is allowed to claim depreciation - why should it not be allowed on buildings?

[minimoke]

It's hard to see a rort. All plant and equipment in any other taxable activity is allowed to claim depreciation - why should it not be allowed on buildings?

Because there are two main components to the residential rental market. One is land; the other is improvements. Buildings only make up part of the improvements. Depreciation applies to curtains and stoves etc as well. Land has increased in value but not to the extent shown in property valuation increases - particularly pre 2007 peaks. Which means the other part of the increase has had to come from the improvements. So the improvements have actually increased in value rather than depreciated.

I'm not suggesting that the depreciatiton shouldn't be allowed - its just how it is treated at sale time.

[Steve]

The most simplistic change would be to not allow depreciation on rental properties and this may be politically acceptable...

[tricha]

The most simplistic change would be to not allow depreciation on rental properties and this may be politically acceptable...

Imm, just sold one rental property, phew, OZ verus NZ, OZ verus NZ, OZ verus NZ, it's becoming very clear.

[beacon]

Imm, just sold one rental property, phew, OZ verus NZ, OZ verus NZ, OZ verus NZ, it's becoming very clear.

Yes, clear to the investors, but clear as mud to Government in power. have posted it elsewhere too, but here is an update:
listings in Waitakere since jan 09 up 27% now
listings in Waitakere since jan 09 up a whopping 52% now (M&D and small landlords)
listings in Manukau since jan 09 up 15% now
listings in Manukau since jan 09 up 30% now (M&D and small landlords)

[tricha]

Yes, clear to the investors, but clear as mud to Government in power. have posted it elsewhere too, but here is an update:
listings in Waitakere since jan 09 up 27% now
listings in Waitakere since jan 09 up a whopping 52% now (M&D and small landlords)
listings in Manukau since jan 09 up 15% now
listings in Manukau since jan 09 up 30% now (M&D and small landlords)

So we have a big jump in listings, when the Govt regulates -

no depreciation offsets
no offsettings personal income tax losses.

Thats what my accountant reckons is going to happen.

Then property will fall by up to 24%, right or wrong ? As all marginal property investers dump, so lets do the sums.

A $300,000 loan on a rental, that returns $32O A WEEK. $16,640 Year income.

$21,000 interest bill, Rates $2000, Insurance $500, Repairs $1000, loss 0f rent $620. $25,000 outgoing.

A loss of $8,000 a year !!!!!!!!

Either rents need to go up and we know that will not happen.

Or the house price will fall to make it a viable investment.

[fungus pudding]

So we have a big jump in listings, when the Govt regulates -

no depreciation offsets
no offsettings personal income tax losses.

Thats what my accountant reckons is going to happen.

Then property will fall by up to 24%, right or wrong ? As all marginal property investers dump, so lets do the sums.

A $300,000 loan on a rental, that returns $32O A WEEK. $16,640 Year income.

$21,000 interest bill, Rates $2000, Insurance $500, Repairs $1000, loss 0f rent $620. $25,000 outgoing.

A loss of $8,000 a year !!!!!!!!

Either rents need to go up and we know that will not happen.

Or the house price will fall to make it a viable investment.

It's difficult to see losses being ring-fenced. That amounts to taxing someone on money they simply haven't got. Depreciation is different because although it's an expense, it's a non-cash expense. So I reckon they'll wipe or reduce the allowed depreciation and leave it at that. Riing fencing losses iss unworkable without bankrupting many investors, unless they grandfather it.

[minimoke]

S
Then property will fall by up to 24%, right or wrong ? As all marginal property investers dump, so lets do the sums.

A $300,000 loan on a rental, ....

A loss of $8,000 a year !!!!!!!!

I'm restrinign on commenting too much on the likely impacy on tax changes to property unitl I see the actual changes. But at this stage I can't help but feel the governement is acting once the horse has bolted. Sure, in the past prperty owneres did very nicely in a rapidly appreciateing market - and Govt failed to take their cut through Captial Gains Tax then. But thats IRD's problem then - and shouldn't be a problem for owners in the future.

But lets look at your sums - I don't see a 24% decrease. If you have a $300,000k loan your property is probably worth, say 10% more than the loan. Lets say $330,000. With the potetnial tax changes by your sums the owner is up for a $8,000 loss. To avoid the loss the owner puts the property on the market. But what will he sell at. He'll try for $330,000 cos thats what he reckons its worth - but he probably won't get buyers becasue they see teh loss situation. If he sells at $322,000 its break even for the new owner who might chance their arm on making on teh capital gain side. Thats only a 2.4% drop in value - not 24%.

Lets also not put aside potential rises in rents. At some point the see saw will rock to the benifit of owners. If existing owners sell out there will be fewer rentals available for those that will never be able to afford to buy. Few rental matched by incresed demand = higher rentals. There will be political pressure to raise Accomodation Allownces and other tax payer funding to assist low income and vulnerabel people with their rent. So teh tax payer will end up paying higher rents.

[fungus pudding]

Because there are two main components to the residential rental market. One is land; the other is improvements. Buildings only make up part of the improvements. Depreciation applies to curtains and stoves etc as well. Land has increased in value but not to the extent shown in property valuation increases - particularly pre 2007 peaks. Which means the other part of the increase has had to come from the improvements. So the improvements have actually increased in value rather than depreciated.

But that's the nominal increase. In real terms it will have depreciated, or moved further below its replacement cost.

[minimoke]

But that's the nominal increase. In real terms it will have depreciated, or moved further below its replacement cost.

The improvements no doubt move below replacement cost - but it appears property buyers are prepared to pay a premium for those improvements at the time of sale/purchase. In the end it is the owner at the time of replacement that bears the cost of replacement - previous owners have had the depreciation.

Its probably about time for residential rental owners to look at rentals as a revenue opportunity rather than a tax vehicle. This is wheer I think cjages to teh tax system can be made - but it won't be easy and there will be fall out.