What change will we see to property taxation?

[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?

It looks like IRD agrees with me. In todays paper 300 property investors are being targetted - and they will be only the tip of the iceberg.

Now don't get me worong, I'm all for tax payers taking responsibility for minimising their tax exposure. But residential rental investments aren't quite in the same league as a business owner with plant and equipment attempting to derive an income from his business. So many property "investors" use property not as a vehicle for creating an income but as an opportunity for reducing gross earnings. This then enables them to reduce their tax payments; increases their eligibility for Working For Families payments and some will even get a Community Services Card.

[CJ]

It looks like IRD agrees with me. In todays paper 300 property investors are being targetted - and they will be only the tip of the iceberg.

These 300 are people who bought and sold multiply properties in a year with an intention to profit.

As with shares, there is a pseudo captial gains when you intent to resell at profit. These people were clearly evading tax and can be distinguished from the M&D residential property investors who buy and hold long term.

[fungus pudding]

These 300 are people who bought and sold multiply properties in a year with an intention to profit.

As with shares, there is a pseudo captial gains when you intent to resell at profit. These people were clearly evading tax and can be distinguished from the M&D residential property investors who buy and hold long term.

It's not a pseudo vcapital gains tax. It simply forms part or all of their income and therefore attracts income tax. That seems to me the only problem - that it is not effectively enforced by IRD. They have all the power in the world to track and tax traders acting for gain by reselling, but they haven't bothered chasing it up since the 70s - they used to be right on the ball.

[minimoke]

.... when you intent to resell at profit.

And thats the point I've made previously about the M & D "investors".

What they have actually done is gone into rental property on the back of expected capital gain. If they were honest it wasn't for the income because yields on so many properties are so pitifully low they could have got more income by sticking their loot in the bank.

Sure, its not for IRD to question the decision making ability of the business owner but its not hard to see when someone purchased, made a cash loss and then flicked on for a capital gain. It also goes without saying that there are some residential rental owners who are in it for the long term - for them it will be easier to show they are in it for the income - but if you look at their books they will, on the whole, make more from the capital gain over time rather than the net income.

An outlandish statement some may say. But look at the median property 10 years ago. Valued at $170k. Today its worth $360k. Thats a $190k improvement or $365 a week. At very best you're only likely today to be grossing $360 a week in rent!.

Rental properties are a great "investment" which beats equities and otther investments hands down. You can borrow money from thee bank to fund your purchase and the interest costs go against your tax. You can personally depreciate the asset and gain the direct tax benifit your self (rather than it washing through a companies books and shared amongst the other shareholders); your gross incomes drops so you get governement handouts. Try that with money in a finance company or shares or metals!

And even if the bottom drops out of the property market you will never loose 100% of your investment (unless you are a dickhead and buy something in another city on a rent to buy basis and fail to insure your investment - then get a multi murderer living next to your property - and then have the local yobs burn your place down: but even then the benevolent council will come to some deal with you to get your land to build a park!)

[Arbitrage]

I agree with your observations MM. This little distraction will go the same way as other issues the Act Party has asked to be reviewed. When the Minister of Finance is a property investor himself (or his various Trusts and LAQC's), what chance will a proposed change in the present situation have?

[nztx]

_

Some camps mightn't discount some sort of munted or mungled version of a deemed % return on cost for assessment of a deemed tax - since this hybrid has been applied in other areas - such as offshore share investment returns in certain circumstances.

As much as it irrespectively imposes taxes on capital regardless of whether an actual return or not or out of capital for being in the market, it might be a solution of sorts for something that might otherwise hit the "too hard basket"

A first attack on depreciation claims was some years ago on Building Losses on disposal becoming non deductible generally & assessibility of depreciation recoveries I vaguely remember.

There is little question that over considerable time there must be adjustment for loss in value on structures as newer are built along & older structures become delapidated or outdate standards without upgrading / remodernising

[beacon]

The fallout has begun..

The harder the line John Key takes on introducing any tax tinkering with residential property, the harder the property market will fall. That would be just the beginning.

Listings are up roughly 10% in the last fortnight, since this talk gained momentum. Squeeze, squeeze. Uh! There's nothing left to sqeeze...

Beware who one takes advice from. You don't ask for medicine from your tailor, so why take business advice from those that haven't a practical clue about business. It seems the face of the Government may have changed, but the core (bureaucracy) is very much entrenched. It continues to dole out numbers based on theoretical models. Sad to see the one-eyed being led by the blind... And so, the flight begins ...

[777]

True. But will the losses be able to be written off against other income. This is where I think English will go. Why should a property owner never make any taxable profit over the period of ownership and write all the losses off. If they eventually do make a profit (Rent minus costs) then the losses previously made can be used against this profit until they are wiped out.

[beacon]

Why should a property owner never make any taxable profit over the period of ownership and write all the losses off. If they eventually do make a profit (Rent minus costs) then the losses previously made can be used against this profit until they are wiped out.

You have this choice if you do any business currently, property or no property. However, it is inequitable to single out and disallow depreciation for the residential rental owner, while keeping it intact for say Vector, Telecom, Auckland Airport et al.

I hear politicians making all this talk about what is fair and what is not? Yet I see no fairness in taking away an interim cashflow management tool from the small guy (who probably needs it more to keep head his head above water), while letting the big fish use it. Depreciation was no more than a Government trade credit to residential rental owners, eventually to be recouped at point of property sale.

If you want to disallow depreciation, and I can see the Govt reasoning to disallow it because the government needs the cash more to smooth out its own cashflow, budget better and keep the rating agencies happy etc., disallow it for all industries. Don't just single out one, that inequitable and unfair to boot...

[Arbitrage]

LAQC's won't be scrapped. They are also used in forestry investment where early losses are high. So unless they define their uses more closely (i.e. stop their use for property investment), the Government won't want to upset the rural constituents.