nz shares or property

[artemis]

... With property, it could be said that for many properties the expectation of making a rent profit is so low that the only rational explanation for buying the 'rental' was for capital gain and therefore that must be your real intent - and tax them.

It could be said and plenty do say. But do they take into account the fourth dimension, plus changes of rules, laws and compliance since purchase.

More than 60% of rental property owners declared a profit in tax year 2018. The only rational explanation is that the intention was income not capital gain. Right?

With ring fencing of rental losses now in place, it is likely that more landlords will reduce rental losses by increasing rents and keeping maintenance to essentials. As otherwise they are dipping in to their own tax paid pocket to the tune of over $8000 average (tax year 2018 again). And of course the faster they get to break even point the faster they can use up their carried forward losses and consider exiting the sector.

I am sure those consequences were completely expected by the government.

[dobby41]

It could be said and plenty do say. But do they take into account the fourth dimension, plus changes of rules, laws and compliance since purchase.

More than 60% of rental property owners declared a profit in tax year 2018. The only rational explanation is that the intention was income not capital gain. Right?

I wouldn't say that that was the 'only' rational intention - so no, not right.

With ring fencing of rental losses now in place, it is likely that more landlords will reduce rental losses by increasing rents and keeping maintenance to essentials. As otherwise they are dipping in to their own tax paid pocket to the tune of over $8000 average (tax year 2018 again). And of course the faster they get to break even point the faster they can use up their carried forward losses and consider exiting the sector.

I am sure those consequences were completely expected by the government.

You get to decide how much rent to charge up to a point - just because you want to make more money doesn't mean that the market will bear it!
Rent isn't a 'cost plus' thing - it is 'what the market will bear' for most landlords I have come across (and being in the 'game' I have come across many).

[Bjauck]

...
The FIF rules came in because overseas dividends are so low (mostly) that you must be expecting a capital gain - so they made a rule as such.
With property, it could be said that for many properties the expectation of making a rent profit is so low that the only rational explanation for buying the 'rental' was for capital gain and therefore that must be your real intent - and tax them.

Actually I think the NZ dividend yield was the outlier being quite high. That is probably for a variety of reasons including a high payout ratio of profit. This helps result in underinvestment in business, lack of productivity growth and many NZ businesses ending up being foreign owned (Last company please turn off the lights at the NZX?)

With interest rates on term deposits less than 1%, the net rent yield on investor housing is not looking so puny!

[artemis]

I wouldn't say that that was the 'only' rational intention - so no, not right.

Wasn't that your argument? Low rental return so owners must be in the game for capital gain? So, if making a rental profit owners must be in the game for income?

You get to decide how much rent to charge up to a point - just because you want to make more money doesn't mean that the market will bear it!
Rent isn't a 'cost plus' thing - it is 'what the market will bear' for most landlords I have come across (and being in the 'game' I have come across many).

The market is bearing quite a lot at the moment in many locations, due to costs, risks and shortages. One bedroom flats in my suburb renting fast at $500 pw or sometimes more. Crazy, and definitely cost plus. At least the one next door to me is.

[dobby41]

Wasn't that your argument? Low rental return so owners must be in the game for capital gain? So, if making a rental profit owners must be in the game for income?



The market is bearing quite a lot at the moment in many locations, due to costs, risks and shortages. One bedroom flats in my suburb renting fast at $500 pw or sometimes more. Crazy, and definitely cost plus. At least the one next door to me is.

I see what you're saying - I didn't say that if you buy to rent at a loss the 'only' rational reason is that you are looking for a capital gain but it is certainly a strong argument, and one that IRD may look much closer at (something that they could do without any policy changes).

Have a chat to the owner of the place next to you and check that they have worked out their costs, expected profit and turned that into a weekly rent figure - irrespective of whether someone can afford it or not.
People have many (or more) of the same cost issues on the West Coast of the Sth Island but the rents are going down - cost plus isn't working there because people aren't willing to pay the rents (because of supply they don't have to).
I put my rents up in-line with local changes even though my houses already met the Healthy Homes standards etc.
Shortages drive the price much more than costs.

[artemis]

.... People have many (or more) of the same cost issues on the West Coast of the Sth Island but the rents are going down - cost plus isn't working there because people aren't willing to pay the rents (because of supply they don't......

Trademe's October rental price index does show West Coast rents (asking prices) reducing - down 6.7% yoy, not that much in dollar terms. Every single other region is up, several close to or even well over 10% yoy. (Gisborne region unknown.)

Increased cost, compliance and risk will not encourage people to stay in the sector, or build new.

[Sgt Pepper]

A theoretical question.
I presume banks will not agree using equity in your home to invest in shares? or am I mistaken? But if I went to ANZ or Westpac and indicated that the money would be used to buy their Shares (WBC or ANZ) what would the response be? They could hardly say sorry buying shares in your bank is too risky??

[arekaywhy]

A theoretical question.
I presume banks will not agree using equity in your home to invest in shares? or am I mistaken? But if I went to ANZ or Westpac and indicated that the money would be used to buy their Shares (WBC or ANZ) what would the response be? They could hardly say sorry buying shares in your bank is too risky??

HA! film that

[Norwest]

Last year we bought the house 4 doors down from our principal residence. With the conveyance person filling out the forms, she queried us on 'intent' if we were really buying that house as a 'personal dwelling' knowing she had previously changed title of our house to our names. I thought this was quite interesting but she accepted our reason for purchasing that house last year. The full intention for buying was to provide a home for wifey's parents. Their financial situation did not permit them to buy the house outright in their name so we wanted it on our name. She accepted but informed us that IRD can check on that ; apparently they must of accepted.

I find it interesting as in Canada, there is only ONE house that is a 'principal residence' ; you can not have 2 places with that designation on the tax filing. So if IRD is really cracking down on people selling homes, at best, they're only after those that buy into as a business, renovating, flipping, etc. Clearly in our case we collect no rent, the inlaws use the place as their own and maintain it as their own. Their mail goes to there. etc. Should we feel guilty because such a move could never be done abroad?

and after all, bright-line tests really don't mean much in the realm of retirement planning. Everyone buys a house and treating it as a long term investment (no different to Kiwi Saver), is not going to sell within 5 years.

With what you have written I guarantee you that the IRD did not accept this property being your PPOR or "personal dwelling", your declaration is irrelevant and if you sell this property within 5 years the brightline test will apply to the sale of this property.

"Did you live there for at least 50% of the time that you owned the property?" - this simple question determines if you need to fill in an IR833 form or not.

If you don't believe me - check with your chartered accountant.

[fungus pudding]

A theoretical question.
I presume banks will not agree using equity in your home to invest in shares? or am I mistaken? But if I went to ANZ or Westpac and indicated that the money would be used to buy their Shares (WBC or ANZ) what would the response be? They could hardly say sorry buying shares in your bank is too risky??

Banks generally don't care what you do with the money. In fact they often grant an overdraft facility without detailing the purpose intended for using the funds. What they do care about is the security you are prepared to give them. A mortgage over a residential property is their preferred security.