If owning an investment residential property and renting it out is a business, are there any requirements for it to be a going-concern in order for expenses to continue to be deducted for tax purposes?
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Depends what you mean by going concern. Is it a taxable activity - yes. Does it have income - depends. Does it make a profit - yes.
I think you may mean something like how long is it OK to make a loss before IRD comes knocking. AFAIK there is no (published) set rule, but IRD systems have a lot of checks and balances and they might well check if there is a pattern of losses. IRD will no doubt take into account when a property was purchased as that can skew the income / expenses ratio.
It's recognized having shelter (or a roof over your head) is a necessity. The issue on taxation should be based on necessity. For everything else, yes you should tax it because there's the intent for profit or gain. The single home owner has no intention for profiting other than to keep a roof over their head. I've just read in Silicon Valley there are IT workers living out of RVs and motorhomes because they're able to save (or basically make the sacrifice to save in order to get into a house later on).
There are not many countries that impose a capital gains tax on everything. Even in the US as the principal residence is entitled to tax free capital gain between moving houses.
The example the CRA uses in Canada is if you rent the house out, then the capital gains are also taxable. ANY ongoing investment portfolio that runs like a "BUSINESS" with the intent to "MAKE A PROFIT" is always going to attract capital gains tax and not just the annual rental income that is taxed after deductions. In fact, CRA model for taxation is very extensive to have 3 areas of taxation when a person looks to profit. You have salary & wage income, dividend income from investments, and capital gain ; all are treated differently with different tax rates. IRD in NZ is way too lenient in allowing the use of real estate as a way to escape tax when compared to other investment or business models.
There is no CGT in New Zealand, though there are situations where a capital gain is treated as income for tax purposes. The current government campaigned on a CGT, then set up a tax working group that (eventually) came to the CGT party. Next minute, the Prime Minister made a captain's call and canned it.
There were some exceptions to the proposed GST, like main home, small businesses sold to fund the owner's retirement, baches. The exceptions were not thought through and kept being added to or changed with voter feedback. It was heading for a big unpopular mess and a potential game changer for the government. So, gone.
Yes i'm aware IRD will simply treat property gains as straight income gains whereas in Canada, the same situation would be the capital gain would be simply treated as capital gains tax (a different rate / criteria). My problem is in NZ, there is no clear distinction for those 'buying houses with the intent to make a profit.... but hold the property well after the 2 or 5 year brightline test' and therefore able to sell the house without IRD being aware of any knowing that rental income has been collected on the property. They've basically kept a complete blind eye on this area with no internal checks. For eg in Vancouver the city council compile records on how the property is used. ie. say if the person intends to rent a portion of the house out, then they require a rental license from the local city council ; for which the home owner has to declare on their insurance policy, for which the home owner has to apportion what % of the house is rented out to the CRA so when the time comes they sell the house, ONLY that % portion NOT used as rental is tax free on their principal residence (under the change of use of the principal residence act). Even leaving the house vacant, the City of Vancouver compiles that data and forwards it to the federal level.
Ms Ardern is a joke. Spent all this $ on an independent TWG - only to say no against their advice. Why was there a lack of communication between her Labour Party caucus and the TWG, WITH the NZ public? What came to her decision? What factors she did not like? The people voted her in to address housing affordability and she's failed miserably in this area. While countries like Canada have made great efforts to address affordability while at the same time, discouraging the incentive to use houses as a profiting tool. Because having grown up in Canada, only very few people i've come across make big $ from owning real estate; the vast majority have made their wealth on the sharemarket. But as i've said before in another thread, NZ's tax structure clearly discourages direct investment in foreign shares that fall under the FIF regime. Those living abroad wanting to reside in NZ would be hit with FIF on their overseas investments - yielding the only migrants that come to NZ are the poor ones that have no significant assets abroad.
Yet interestingly in NZ, there has never been a fund to invest in residential property. There are funds for commercial property. I asked Brian Gaynor a while back why this was. He said it has been tried in the past but it just does not work. There is no money to be made in residential property. (in other words its too hard). So I do not think there are profiting mechanisms with residential property. I manage three rentals that have appreciated in value the last 10 years, but if I go back and work out the return after all costs, I would be better off having put my money in the stock market. Once the growth in capital value that we have seen the last 10 years plateaus, it is going to be a season of discontent for those holding residential property.
If you take your time frame longer, you'll find residential houses would perform better than shares. Of course subject to what houses or shares you buy - I would speak specifically houses in the Auckland market because i've seen many of my cousins that bought houses there shortly after 2000. The amount of windfall in gains is immense if they were to sell today. For the same period, you've had a dot come crash and a GFC.
Reason why no residential property funds? Because in the similar fashion with commercial properties ; the residential holding will be subjected to tax on the gains and rental incomes, for which the net result is little or no gain. HOWEVER, to the individual landlord.... that structures buying a bunch of residential properties over many years while collecting rental income, can sell over the long long term without paying a $1 in tax. As I mentioned before, no one considers taxation.. not even the manage funds in Kiwi Saver that addresses the taxation for investors. They talk about fancy annual returns over so many years but they're not net of taxes they pay and taxes that the individual has paid.
I seen the stock market crashes.... without a doubt, Auckland residential property has an advantage.
Not sure how many on here read the "NZ Property investor mag" but now and again I get an issue and as I've enjoyed many a good investment return in NZ Property I like to keep up to date with present market >>
Now in the latest issue I read a piece on "Why you should take interest only loans over your investment properties" and forget about paying off the debts as NZ property only goes higher in value on average 10% pa so just use the increased equity you get and buy more and more properties on I.O and never pay the properties off.
Surely we must be getting to peak Property love here in NZ as looking over the average yields nationwide on current average selling prices we see yields of 3-6% so no wonder I.O lending is all the rave as after an ever increasing insurance/rates costs taxes etc not going be much if capital left to pay down any of the actually property purchase price .. pure madness IMHO
seems like the core investment plan of many is BUY and hope for Cap gain as in the past it worked great so why would it top now
My uncle in Australia has invested heavily in real estate for about 40 years and used the same model of borrowing maximum with use of negative gearing, and with no intention of ever paying the mortgages off as every so many years he went out and bought more properties. Now, or since the psat 10 or so years Australia imposed stamp duty on real estate investments. He says there are no significant gains and all he does is just work for the bank. He's also too frighten to sell any of his properties because of CGT and hindsight, he tells me he would of been better off invested into the sharemarket. Of course this is Australia. In NZ we have an entirely different can of beans and i'm not seeing the Kiwi Savers having more than the real estate investors. Of course there are exceptions but I keep hamming the same issue; unlike Australia, NZ has a clear tax advantage in residential properties.
Another uncle is trying to sell his house in Australia for which he said had made x 3 times capital gain for holding around 30+ years. The offer was accepted but since he lives in NZ, he NZ lawyer and the Australian lawyer have got their hands in the pot. He would most certain have to pay CGT but the other issue is, Australia's tax dept may take a closer look and query about the rental income he's earned off it for the whole time he's owned the property. On top of this you have NZ's AML and CRS regulations. Again, Australia is not like NZ where you can have tax free ie 'home stay' income. I told him hindsight, he would been far better off buying Auckland real estate instead.
Yes fully understood ...strange why the article on I.O over I.P didn't put this into the perspective of income to debt ratio ... which banks are they using ??
But I've seen the same promotion on the NZ propertytalk forum .. the idea to property wealth is as basic as BUY and HOLD then RENO revalue -repeat and don't stress about yield as the ongoing Capital Gain will make you rich Negative Yield no stress .... the no money down 20 properties in a year hype etc
In NZ, tax free capital gain on the sale of residential houses. There are so many ways one could game the system; via being a slumlord or doing fixer uppers, holding the properties in multiple names within the family. The gaming of being tax free is so significant that IRD does not have the tools to monitor it. VERY different to in Canada where lawyers and real estate agents are held accountable by the tax dept for not crossing the Ts and dotting the Is. In NZ if a real estate agent is caught not confirming with AML, well they just lose their job. In Canada, up to 1/3rd (IRC) of the value of the house must be held in a retainer and is not released until the CRA gives the OK.
So when you compare to Kiwi Saver, an investment scheme where you can't leverage and the gains are taxed annualy, it doesn't take long to realise that "cumulative" gains are not really there despite employer matching contributions. FYI, this was all addressed in Canada when they introduced RRSPs. Small matching % of contributions are ineffective as many managed funds take more than 2 or 3% in admin / mgt frees (especially during the 80s and 90s era). So they made a maximum of 18% limit for matching contributions. In additions, UNUSED contributions in previous years could be carried forward indefinitely. Meaning on years where you contributed nothing to your pension, the CRA would allow that portion credit to applied in the next year (essentially doubling your contribution amount). This flexibility is critical as stock market rise and fall and so should the investor be able to choose WHEN they want to be in the market or not.
You must be blind because i'm seeing everyone (well not everyone but a ton of people) gaming IRD. Accountants know themselves advising clients how to buy residential properties and NOT fall in the trap that IRD will tax their investment upon the sale of the house. Such as keeping the house well long enough before selling, and not selling more than 1 house within a short period of time. Why? Because IRD rules are, holding houses long enough = tax free capital gain. This is entirely different to IRD's view on share investments where you hold them for 1 day or for 10 years, the gains are taxed annually.
Actually it is, or can be, different for residential rental properties. Bright line test. Ring fencing of rental losses. Removal of building depreciation.
And not tax but new legislated compliances in place or announced that do not apply to other businesses - rent control (increases annual only), serious restrictions on termination, more ....
You mean NZ and some shares on the ASX? Is it sensible to have your eggs in 3% of the world's asset in terms of diversification? Higher quality stocks abroad such as those on the NYSE or Nasdaq attract FIF and regardless of what shares you invest, most are subjected to dividend tax (not many are full 100% imputed tax credited). Perhaps investors need to realise NZ's corporate tax rate is not competitive to corporate rates in the US or Canada ; what would that lead to in terms of overall returns. Oh and I find it very interesting of NZ share investors obsession with collecting dividends. But if you want capital gains.. not many on the NZX can throw a pitch to NZ investors that they prefer to keep cash flows and reflect the retained earnings as capital gains.
Very few invest shares directly, so i'm pointing to Kiwi Saver, ALL those managed funds are trader status and therefore subjected to tax on ANY gains. There's no way to game shareholder investments like you can with buying residential properties.
I reiterate my point, there's a huge difference in how IRD addresses tax on real estate investments where despite you have rent controls, etc. virtually everyone is gaming the system so they don't pay any tax on the capital gain. I know many that use the 'home stay' category which IRD allows the home owner to collect rent tax free up to a threshold. The Bright Line test is a joke because all it does is tells investors a clearer rule ; sell the house before 5 years and you'll be looked at for taxes. That's a load of rubbish in terms of addressing the real issue that tax on real estate in NZ is handled entirely different to other forms of investments.
Claiming depreciation on a house? Only reason to do this is IF you're running your residential portfolio AS A BUSINESS. Therefore have to pay the tax. Anyone gaming IRD will not do this and fly under the radar, use their own expense to make repairs to the house, increase it's value. If I recall correctly, Winston Peters said that NZ's real estate is the key pillar of NZ's economy and structure. No wonder Jacinda Ardern did nothing about CGT.
I can't speak for yourself and there are exceptional cases where individuals have done well in shares. The bold reality is people in NZ are not investing directly. You simply can't pitch a model where the average person is able to produce exceptional returns with shares. I'm not seeing this like I do in N. America.
Do you wonder why all the banks don't care for share investments and all they encourage is to loan mortgages? As the previous person mentioned in this post, his bank did not care about the share investment holdings when looking to buy his daughter's 1st home. What banks will do is lend on equity of real estate but NOT on equity in shares. I'm sure you are aware of this ; banks are freely able to lend on houses and nothing else.
It may seem i'm all bitter about this disparity between investments in residential housing, & shares on the stock exchange (from a NZ perspective). My greatest concern is for the average NZ resident, even for say 90% of the NZ population, pitching a model of Kiwi Saver to them would prove worse than if they invested in real estate directly. Of course things could of been different IF taxes were more equitable like they are in Aus/Can/US. You can give hats off to Michael Cullen for ramming Kiwi Saver down on the people.
Personally I hate real estate as an investment because it's a non-productive asset. But what can be done when you're living in NZ? I look at my children to see what choice they have for investment planning and the picture tells me clearly. 1) The next generation living in NZ will never have as much wealth, in terms of shareholder / pension investments, then those living abroad in the US or Canada. and this is ALL due to the differences in tax treatment. 2) Choosing Kiwi Saver vs a mortgage to buy another house (because you can leverage) will net you more wealth at the end ; again due to differences in tax. Following link elaborates the issue: (for which at the time they were talking how much wealth would be left on the house IF CGT was passed ; we know now we can forget about CGT):
https://www.nzherald.co.nz/business/...ectid=12209227
Look at the graph showing the timing of tax; the brown line (assuming the house investment) having a lot more wealth at the end than the blue line (assuming ie managed fund share investment where the gains are taxed every year). As quoted from the link:
"They are taxed at the same rate, but they do not end up with the same returns. The investment that's taxed at the end earns compound growth on everything, while the line that's taxed annually loses part of its growth immediately, along with the compound growth that would've come with it. In this scenario, that amounts to a $142,000 difference."
And no person has been more vocal about robbing wealth from compounded returns than John Bogle (RIP) in his Vanguard empire where he was critical on high management fees by managed funds. Likewise, no different to paying tax on annual gains or in the FIF. If your Kiwi Saver fund is invested in the US listed shares, unfortunately FIF literally robs them by taxing on the whole investment amount of FDR 5% regardless on years where they make no gain or loss. Meaning why is there a difference in FIF treatment for those invested in managed funds vs individuals owning US shares directly ?? If you're not following, the individual person under FIF on years where they have a loss, can elect out of the FDR and choose the 'comparative rate' FIF and pay no tax. Managed funds CAN NOT do this ; they're forced to pay FDR on the entire portfolio value having gain or no gain. Below link is an example of what i'm getting at: (which proves the person in a PIE fund is worse off... You say PIE advantage?)
https://www.consilium.co.nz/media/10...-consilium.pdf
There was another web link that has gone off line but it's titled "For FIF’s Sake: Why NZ global tax rules need a rewrite” by Anthony Edmonds". Which shows even more tax disparities between the individual directly investing under FIF and those investing under a PIE.
But of course... people in NZ only should invest in NZ shares because it's the right thing to do LMAO...
Maybe because of the relative appeal of residential housing investment and until recently an the lack of widespread pension scheme assets, The NZ share market has been hollowed out. So many NZ companies have relocated overseas - or have been taken over. For example just to maintain a shareholding in ex-NZ company Xero involves holding foreign shares on the ASX.
Much of the banking sector is in Australian hands so for the NZ resident for that business sector the only way to have a shareholding in that substantial part of the NZ economy is to have shares in a foreign company through foreign shares trading either on the ASX or on the NZX. A NZ company owning those banking assets would enable the NZ shareholders to claim a substantial imputation credit as opposed to the current situation of a minimal imputation claim for NZ resident holders.
I think NZers owning shares in specific overseas companies, which have assets in NZ, is sometimes the best way for NZ residents to have targeted exposure in certain NZ businesses and sectors.
Many NZ business and companies have ended up under overseas shareholders. Why not vice versa.
I'm quite sure you know the answer why. I've never been happy with the whole idea of dividend payments and with inputation credits because the more efficient method from a tax point of view is to keep the funds in retained earnings / shareholder's equity and let the share price reflect that. Therefore generation a tax free capital gain. Just allow the shareholder to elect any disbursements of payment by simply selling a portion of their share holding. This creates liquidity on the NZX (for which the reality being, the liquidity is drying up on the NZX).
I also question how many foreign companies abroad actually have full interest in owning NZ companies? Who would risk that kind of involvement? I've seen the Canadian "Ontario Teacher's Pension" come and buy NZ's Yellow Page holding for a large sum... to only later be wiped out by online information for finding ph# instead of out of the traditional Yellow Pages directory books we see delivered to homes each year. Then there's "sensitive assets" like the Auckland airport where foreign funds tried to invest in. When you look at the NZX, what reputable managed fund from the US would ever find 'undervalued' companies there? Not when politically, you have an investment environment that discourages NZ residents ability to invest in foreign shares ; i'm certain brokerage firms in the US have simply cut off access to buying equities on the NZX over the recent FMA regulation. You have a ban on non-residents being able to buy houses in NZ. It doesn't take long (or the damage has already been done) to tell the investment community abroad that NZ does not play fair when looking at both sides of the fence.
Reason why many NZ companies like Zero have gone abroad? It's the very same reason why the individual would seek their investments abroad. They seek a more fair equitable tax system. Does NZ's corporate tax rate of 30% seem competitive on the OECD scale?
It's just so sad the individual living in NZ gets the worse situation being stuck in Kiwi Saver and the price of owning houses have been an exclusive for only the high income earners...
I think I may not have made my point clear in my response to another poster. Namely: Much of NZ business is now actually in foreign ownership. So, owning foreign shares may actually be a way to invest in those companies who own NZ businesses now.
However in relation to imputed dividends I disagree. It gives a tax-neutral flexibility for companies to either retain or distribute tax paid profit. Attaching imputation credits means that the shareholder is not then in effect double-taxed on the company profit. If the tax paid profit were kept in the company, then the only way for a shareholder (who relies on an income stream from investments) would be to sell shares thereby incurring transaction costs.
Other countries have investment schemes with discounted tax rates on dividends and/or a tax threshold before dividend income is taxed. Certainly until NZ introduces such schemes, imputation at least tries to address double taxation on the income from NZ shares.
A few years old:
https://www.interest.co.nz/business/...reholders-says
I'll try to keep this short as it's off topic. I completely agree on the reasons for the imputation credit, which avoids double taxation. Canada addresses this via a dividend credit directly to the shareholder on their tax return. But eitherway, i'm not buying this argument one bit. You have critics that have been very vocal against Warren Buffet why he doesn't pay dividends in Berkshire Hathaway because quite simply, they don't know better. This is not to rain against issue dividends because Buffet collect a heap of dividends. His view is simply again, not tax efficient and encourages the companies that Berkshire hold to retain profits for use in EXPANSION to maintain growth. Otherwise if there's no growth then dividend payment is acceptable.
If you really want an income stream, then choose a different asset class. But to assume these NZ listed companies to have an expectation to pay dividends? No matter if they're in a growth stage or mature type of company say like utilities (huge lack of distinction). It's prevalent entirely through NZ's finance industry ; NZ brokers such as MacQuires giving out their investment approach that focus on dividends and .. none other. No wonder companies like Xero have left the NZX. On the US front, US brokerage firms are shutting out access to the NZX because of the NZ gov'ts FMA. Then I hear liquidity in the NZX is drying up. Should be interesting to see where the NZX will be in 10 years. Wouldn't be happy to be holding Kiwi Saver focused solely on NZ listings.
Companies such as Xero May also have left NZ owing to the fact that the available capital has been limited - pension funds have such a comparatively small investment footprint here and households stuff their assets into residential housing.
Obviously with shares, there are types of companies and sectors where dividend streams are available, as in overseas markets. No income stream is 100% certain, just as with fixed interest stock and residential rents. Risk assessment is a requirement for all investments, businesses and even in selecting a salaried position.
A Christmas Carol - a modern NZ version:
When one person's investment is another person's home....
New Zealand's rental market: What's really happening?
https://www.stuff.co.nz/business/118364208/new-zealands-rental-market-whats-really-happening
What's really happening? Look beneath the sad Christmas stories. The current government has changed the rules, and has announced yet more changes.
Equal and opposite reaction?
Note that the tenants who have to leave all say cannot find a new rental. Funny that.
I tend to think tenants should have permanent tenure if they want it.
That would make landlords think more about what they are doing, profiting off others fundamental requirements. Hey I'm not against it but landlords need to commit!
However, it should be quick and easy to remove if genuine reason such as damage or arrears or anti-social activities etc.
Correct, and in practice it happens often. The new termination rules announced by Minister Faafoi pretty much have that effect, with only limited reasons to terminate a tenancy. By the asset owner, that is. Tenants can pretty much leave when they like. He may walk some of the new rules back a bit, though no sign of that yet.
I've never wanted to be a landlord despite acknowledging its massive benefits, and I may be labouring the point a bit I guess but what I'm saying is that it should be mandatory that a tenant can stay as long as they like and landlords should know this and learn to live with it.
It can still be sold of course! As a going concern and income stream. So nothing really changes for those truly wanting an income stream.
I agree its a bit draconian but it would sort the housing market out :D
Edit: To me right of tenure is a fundamental human right bugger all this right to internet or whatever, but having a roof over ones head goes to the absolute bone (with me) in the sense that it destroys the soul if its not there. You have to pay for it of course and quick punishment and eviction if you don't. That would be my trade-off , absolute severity in this area with legal enforcement easily available etc.
<end rant>
Right of tenure is set to take a big step forward here. If this continues then I think we will see a change in the mix of landlords. State subsidised social housing will have to increase rapidly, and there will be the rise of corporate residential landlords and the drifting away of landlords with only one or two rentals. An apartment building of rentals only, corporate ownership, has been discussed recently and is common overseas.
Consider the consequences. Social tenants will have right of tenure pretty much because if they are trouble who else will take them? Corporate landlords will follow the rules to the letter and take no prisoners. They will be resourced to do just that. Sad stories will not wash.
Plus a flood of freed up funds into other investments.
Unless the financial system changes this will always make sense. With stable prices negative gearing would just be about people losing money and investing poorly without the 6-8% tax free capital gain it would just be stupid. People do not expect to pay back debt anymore, they know that central banks will engineering inflation (reduction in the value of a dollar) to sort out their debts. The display since the financial crisis has been shocking across the globe, wholesale printing of money and something as ludicrous as negative interest rates has been preferable to letting asset prices fall. The system doesn't make sense but property investor is giving the right advice for the times.
We need to scrap targeted inflation as a policy it has only been around since 1990 in NZ when people still believed in trickle down economics. That is all it is a dumb idea that if rich people feel wealthier we will all be better off as the wealth trickles down.
I haven't got the statistics but I imagine wealth is actually trickling down while the main flow upwards increases wealth and income inequality.
This article appears to confirm that NZ Property is on the right track with its IO advice.
https://www.zerohedge.com/markets/wo...global-economy
Interest rates can't rise the only way out would seem to be high inflation and a massive decrease in the purchasing power of currencies (currencies in which your loans are denominated).
It seems wrong to me but there is no one in a position of power willing to change things.
Article basically sums it up as, 'don't put your investment into emerging countries' because they have a far higher debt load with a much higher level of risk. It's the very developed nations that are benefiting from the rise in debt. The question is which nations can handle a rise in interest rate? Large nations like the US certainly can and when this happens, you'll see the lessor countries will suffer more into financial crisis.
So the question is how bad is NZ real estate investment? NZ's currency is already been devaluing since the the Labour Gov't coalition and with a ban in foreign buyers of NZ residential houses (which reduces the liquidity), you'll find the NZ gov't has no option other than 1) raise taxes & 2) borrow more funds EXTERNALLY 'abroad'. FYI, many talk about how much debt the US has but fail to understand at nearly 3/4 of is internal or public held debt. The other 1/4 is gov't debt / foreign.
Consider how much debt our NZ gov't has been borrowing abroad. We've grown from $270B to nearly $300B under Ms Ardern:
https://tradingeconomics.com/new-zealand/external-debt
My purse is in the US and fortunately so (as the article makes mention of "the Smart People") because quality attracts capital. Unlike NZ with foreign buyer ban, the US maintains an open market policy for foreign investment (most specifically in US equities which is far more productive than owning real estate).
America catches a cold; the rest of the world gets pneumonia.
Apart from certain cities in the US, Americans have more affordable real estate than NZers?
Before the foreign purchaser restrictions were introduced many insiders (sure many had a vested interest in high turnover of expensive property and mortgages) downplayed the involvement of foreign purchasers in residential real estate. We were informed that such bans would have just a limited effect. Surely the effect on liquidity would be minimal as the majority of demand is local?
(2017) https://www.stuff.co.nz/business/984...property-sales
https://www.tvnz.co.nz/one-news/new-...housing-market
Just before the ban came into effect https://www.interest.co.nz/property/...and-houses-not
I watched an interview today on the US Markets talking about debt issues etc ... saying how the property bubble is back with House price-to-income multiples over 4 !!! here across NZ the average is around 6 Auckland 9 ---Queenstown the most out of balance with 13 !! (I'm sure Central Otago would be around Auckland rates)
and that's the real reason! If the US is talking of a housing bubble where it's a multiple of 4, what does that leave for NZ? What keeps NZ real estate going is the preferential tax treatment vs investing in other ventures (ie small business or shares). If houses in NZ had capital gains tax similar to abroad, then we would see as much speculation and the housing multiples would be much lower. Also part of the reason for the much higher multiple in NZ is taxation is much higher than in America, meaning it takes a lot more years ; or a higher multiple. But overall you simply can't compare US houses to NZ houses as it would be like comparing apples to oranges. In the US, house sizes are clearly massive. The middle class person in the US lives in a house that only maybe the 1% in NZ would afford in NZ (and that's if 5000 ft^2 McMansion size houses were a common thing in NZ which they are not). Furthermore, US house sizes are based on "livable space" vs in NZ house size is determined by basically the size of the slab foundation (no factor on the thickness of the walls, hallways, aspects that matter on the term "livable space". The garage space or balcony / decks are not livable spaces in the US but can be in NZ. So a 280m2 size house in NZ is really only a 2000 ft2 size house in America.
Don't believe the economists from various NZ banks as they're misleading like their Kiwi Saver funds NZ banks keep promoting. Well.. deceptive in that the full taxation of the funds and to the individuals are not spelled out clearly when investing NZ or foreign equities. They don't know the full impact of things on a global scale. So when a ban is set, the impact is it discourages OTHER forms of investments (trickle effect).
Close friend living in Vancouver keeps me up with the un-affordability of housing there. But after his visit to Auckland last year, he completely understands what I meant by comparing apples with oranges. The Auckland house doesn't have the central heating / home comfort as the Vancouver and all at a price tag where the Auckland house is more than in Vancouver, while being 40% smaller in size. Narrow streets, no back alley access.
One thing that will definitely hurt NZ is if migration goes the other way (more people leaving NZ and those coming in). Of course this is on to a different topic but the issue of brain drain is a concern. When NZ public hospitals get a low grade report because it's cheaper to use senior nurses to take care of patients when it should be a proper doctor (because most likely many of these doctors have left NZ). NZ gov't doesn't pay enough and each wave of strikes that happen, the Labour Gov't fixes it with raising more pay which in effect, loads up the productive class of NZ by making them pay more taxes.
That is true. I think Australian residences also are of better quality to those in NZ. So extracting the value of the improvements and just comparing the value of the land part of the section, NZ real estate is even more unaffordable and expensive. Residential real estate does comprise such a large proportion of NZ household wealth. What happens with the price of housing will have a bigger impact in NZ than for other countries.
i think NZ had net emigration and a brain drain in the 1980s, but the real price of residential real estate kept on increasing as well. It is also worth bearing in mind that the UK joined the EEC in 1973. Until then the UK had been our biggest export market (the UK accounted for 36% of NZ exports in 1970) and there was a challenging period for the NZ economy after that.
Even if you factor the statistical measure with the bell curve, no matter which part of the bell, the results is so compelling that NZ is so far out of touch in affordability or what you get in a house.
Another figure to look at is land prices for empty sections. Here in Christchurch we're looking near $300,000 for 600m2 size sections in new sub-divisions.
Many years ago I remember on talk radio talking about some overseas celebrity visiting NZ that made a statement saying "NZ is a rip-off place" and I think the public kinda took offense to the person's statement. But there was some merit to the person's claim. I suppose when NZ residents hear that kind of negativity, they can't give any other excuse or a way to change it so they come back with remarks like "Well if you don't like NZ you don't have to visit again etc.."
Another week; another housing unaffordability article;Another drop in NZ home ownership rate? The housing divide continues.
https://www.stuff.co.nz/business/118...ess-affordable
Good news for the tax efficient de facto retirement schemes for boomers, but bad news for first home buyers and home upsizers.
Not sure which would be worse low interest rates and high house prices or high interest rates and low house prices.
We have hindsight to know anyone buying in the 70s & 80s has had inflation to rapidly make the mortgage manageable in spite of the high interest rates.
From recent history we also know that buying a house has still generally been a very financially positive move.
https://www.rbnz.govt.nz/statistics/...e-price-values
https://www.rbnz.govt.nz/statistics/...ph-90-day-rate
I wonder if this will ever change or if there is a price that is too high or a yield too low (particularly in light of the additional costs being put on landlords).
At negative interest rates no asset price is too high and any yield above 0% would probably be acceptable.
Low interest rates make for the worst time to buy. Go mad when they are through the roof. If they drop your asset increases in value while your outgoings reduce. Buying when rates are low (and prices are high} is risky. If/when rates rise, your new asset value drops and the cost of ownership rises. Fungus's first law of economics. 'Interest rates and asset prices are the opposite ends of a see-saw'.
So much NZ household wealth comes from investment in land. With asset price inflation, as wealth inequality increases with current tax settings and wealth becomes concentrated in a small percentage of households, NZ will probably have to develop a strategy to reduce the social frictions.
The following is about to years old, so the situation is probably even more polarised now.
Oxfam report - Huge wealth gap in New Zealand where richest 1% own 28% of wealth
https://www.nzherald.co.nz/business/...ectid=11979151
Is Capital Gains Tax Really Dead?
https://www.stuff.co.nz/business/opi...ax-really-dead
Suggest take Oxfam reports with a big spoon of salt. They have an agenda. They, and many journalists that create the headlines, are regularly smacked by some who compare the base data Oxfam use (from the Credit Suisse highly regarded global wealth report) with the Oxfam conclusions. And the headlines.
Credit Suisse 2018 reports show that New Zealand’s wealth inequality declined from the previous year’s 72.3 Gini points to 70.8 Gini points. Don't see that in the headlines, probably not reported at all here.
Kool-Aid.
And even if the 28% is correct, Oxfam includes NZ billionaires from the Forbes annual list. Because it supports their agenda and keeps the donations rolling in.
Sure they have an agenda. Who doesn’t? Using the same facts and information, different people offer different conclusions. So we need to look at vested interests, what has been ignored and and who pays those that offer different conclusions.
One Oxfam agendum is to strive for a fairer allocation of resources. I wonder how NZ is faring in 2020.
The world is full of vested interests and Government policy is usually the result of the most powerful and influential vested interests. Suggest we should critique those who rubbish Oxfam too.
Oxfam answers some questions:
https://www.oxfam.org.nz/news-media/...uality-report/
Completely agree - a lot of the reports don't factor important variables and many can't be simply quantified in figures. Like how do you quantify a person's reason of living in NZ because the climate is better? How do you quantify the living comfort of a Canadian built home despite having a high carbon foot print?
An equally justifiable reason. Why is it at uni (well at the time I attended) the profs were out to fail everyone? I mean when I attended uni in Canada, having 50% of the students fail in finance classes was the norm. So what does that mean for the top 1% in the class? Why should they get better recognition? I feel this is the same argument how the media points a bad finger at the 1% owning a high % of wealth. Is it not they should be rewarded for their ability? How else do you address inequality because when I was grade school, I saw a lot of students that were not equal and simply didn't make the cut. It's a double standard we have in society ; ok for the poor to receive benefits and bash the rich, but when it comes to education, let's bash the weak and praise the top grads.
As far as CGT in NZ goes. Well our gov't will never be serious about it as long as they have a vested interest in real estate. Certainly not with NZ 1st and Winnie Peters. However, I often wonder why the TWG never considered options in implementing CGT in tranches? This is nothing and has been done in Canada for as long as I can remember. At times the CGT was 75% of the gain became taxable income. Then dropped to 50% of the gain becomes taxable. There's also exemptions to certain special assets. Even Bush made exemptions for US farmers to have their land exempt from CGT. I see NO reason why the NZ gov't couldn't do the same. Perhaps over 5 years implement the CGT SLOWLY so it doesn't have a hard impact on investments.
SBQ - I think I am on the same page as you in relation to a CGT. However I am not sure about the rest of your post. It seemed somewhat contradictory to me. I have to say I got lost when you said some students "were not equal." I agree that skill in a particular subject, academic ability and intellectual function is not the same for everyone.
Apart from on CGT, we may have to agree to disagree.
Doesn't seem like much CGT for all those audits
https://www.stuff.co.nz/business/118...3+January+2020
Which goes to show that the tax laws in NZ are not on a fair playing field. As a matter of comparison, in Canada when you purchase property you have to disclose to the lawyer / conveyance person why you're buying it? there's a tick box list of things like 'your 1st home', 'vacation home', non-resident home, and many others. NZ's taxing of property speculators is no different than in Canada. Actually there are 3 major categories that the tax authority views on house / land purchase. If you're in the business of dealing with buying and selling real estate, then of course the gains on the sale of your assets (the houses) will be taxed at same business income rates (no different to in NZ). If you bought the house as an individual and it turns out you're in the building trade, then the gains would be classed as regular individual income tax rates. If you bought the house and made improvements to the house in a renovation, then the 'adjusted cost base' would have to be changed and the house would get revalued for taxation and of course, the intent is the key ; auditors will ask did you renovate with intention to sell? If so, then the gains on the sale will be at capital gains rates. So what i'm getting at is what IRD has done is they have not spelled out clearly (as in that article) what is taxable when making gains on the sale of property. Too many loops holes in my opinion because something like this would never happen in Canada ; they don't even have such a brightline test criteria - the declaration status is determined at the time of purchase and at time when the house is sold.
@ Bjauck:
What I was getting at is at school, the smart students that do so well (and of course work hard) are well rewarded and those that fall behind... they just get left in the corner. But in the realm of investments in NZ, it's only those that have the $ are the ones that can take advantage of buying NZ residential properties and be able to sell near retirement with tax free capital gains. Those that are on the low end class status in NZ have only... Kiwi Saver for which is subjected to a lot more taxes throughout the entire investing scheme. That's unfair and that's why Canada addressed this issue decades ago. The rich shouldn't be the only ones that can make $ and 'be advantaged'. Just like at uni, the smart or clever students are the only ones that can get scholarships. It's all wrong.
SBQ - I agree with you on the Kiwisaver/investment real estate unfairness in burden of tax.
True, because the extension of the bright line test to 5 years was a recent adjustment, I had heard the IRD contacted people to tell them they may have missed something from their tax returns and if you don't want late payment and shortfall penalties maybe you want to revisit your calculations before we audit. The bright line test is pretty cut and dried in many cases so it would be interesting to know how much was voluntarily disclosed after contact from IRD prior to being audited.
UN housing expert calls for NZ rent freeze and CGT to end 'significant human rights crisis'
https://www.stuff.co.nz/life-style/h...-rights-crisis
Does the UN expert realise the electoral hurdle that exists to overcome the entitlement of boomer investors in residential housing?