Labour / NZ First Government

[artemis]

Looks like Labour had a good day again, best feeling there in 40 years. Maybe it was well planned in advance, they're not making the normal mistakes. A bit of humility.

Bypassing Te Tii marae more likely.

[fungus pudding]

[QUOTE=elZorro;702198]

Easily sorted with a policy that looks at the capital value relative to other properties in the area. If it's exceeded by a big percentage and the costs to get there weren't large, then maybe there would be a cutoff on the family home. Maybe. But in most cases, the expenses to keep a family home tidy or to improve it, plus pay the interest, exceed or make up a large proportion the capital return. Why do rentiers buy basic low-maintenance homes or block flats? Low overheads, and then they claim back the interest costs.

They do not 'claim anything back'. Who would they claim it from? The bank they paid it to would hardly be interested in refunding it.

[elZorro]

[QUOTE=fungus pudding;702207]

They do not 'claim anything back'. Who would they claim it from? The bank they paid it to would hardly be interested in refunding it.

You know perfectly well that rentiers and business owners claim back any interest expense on property as a business cost on their tax returns. So they claim a good proportion of it back from the taxman. If they obtain enough property and keep the interest cost high enough, it can greatly reduce their income tax. They can also choose to shuffle debt from their private side to their business side, enhancing the benefit. Someone who is renting gets no such benefit, and neither does the normal homeowner, who usually pays interest at about the same level as if they were renting. Both costs are dead money in exchange for having a place to live. But usually the homeowner has extra costs in keeping their own home in a good state, which a tenant doesn't have. This probably soaks up the rest of any capital gain that might be made, if we were all honest about it.

This draws a clear line for CGT between tenants and homeowners on one side, and rentiers on the other.

[fungus pudding]

[QUOTE=elZorro;702226]

You know perfectly well that rentiers and business owners claim back any interest expense on property as a business cost on their tax returns.

They do nothing of the sort. Where does 'interest paid' appear on a tax form? (Answer - it doesn't) The fact is they pay tax on the profit generated from their rental activity.
Interest paid is recorded as an expense in their books - which is not 'claiming it back'.
Just the same as a business pays tax on its profit - not on its turnover.

[777]

They do nothing of the sort. Where does 'interest paid' appear on a tax form? (Answer - it doesn't) The fact is they pay tax on the profit generated from their rental activity.
Interest paid is recorded as an expense in their books - which is not 'claiming it back'.
Just the same as a business pays tax on its profit - not on its turnover.

fp interest paid is deductible against rents received for tax purposes. It is an expense in achieving taxable income.

[fungus pudding]

fp interest paid is deductible against rents received for tax purposes. It is an expense in achieving taxable income.

Of course it is an expense and therefore does not form part of taxable income. But it is incorrect to say it is claimed back. It is paid to a lender and gone forever. Tax is never assessed on turnover; it's profit that is taxed. Terminology is important.

[elZorro]

Of course it is an expense and therefore does not form part of taxable income. But it is incorrect to say it is claimed back. It is paid to a lender and gone forever. Tax is never assessed on turnover; it's profit that is taxed. Terminology is important.

Just semantics, FP. The actual interest cash paid to a lender doesn't get repaid, but effectively the taxman refunds a portion of it in the business owner's tax return. While we're at it, there's another important difference between home and family bach owners, and rentiers. R&M is claimed in the year of the expense by the latter, and they can also claim some depreciation on furniture and fittings as an expense. Also any external costs in insuring and generally running the business operation, except their own time.

http://www.ird.govt.nz/property/prop...penses.html#01

The net result is a percentage reduction in tax on income received while they own the asset, a luxury not extended to tenants or homeowners.

Add to this the fact that most rental property is not fully up to current code, lags behind general housing stock and is a relatively unproductive part of the economy, and it's a terrible waste of capital effort by investors.

[fungus pudding]

Just semantics, FP. The actual interest cash paid to a lender doesn't get repaid, but effectively the taxman refunds a portion of it in the business owner's tax return. While we're at it, there's another important difference between home and family bach owners, and rentiers. R&M is claimed in the year of the expense by the latter, and they can also claim some depreciation on furniture and fittings as an expense. Also any external costs in insuring and generally running the business operation, except their own time.

The net result is a percentage reduction in tax on income received while they own the asset, a luxury not extended to tenants or homeowners.

What rubbish. Tax is never assessed on income: it is paid on profit. Providing rental accomodation is a money making venture, although not classed as a business, therefore outgoings do not form part of the profit. Occupying your own dwelling is a whole different ballgame.
To claim this is a 'luxury' not afforded to home owners is absurd.

If you are suggesting landlords should be taxed on total rent, then rents would necessarily skyrocket, as much from increased costs to landlords as well as suffering from a dried up market.
If on the other hand you are suggesting that home owners be permitted to deduct such costs from whatever income they have, then the price of houses would be astronomical.

[artemis]

Don't worry elZorro, the government is onto it and will be clamping down hard on landlords real soon.

(Wellington Trademe vacancy ads down 71% on same time last year. Landlords are watching. And acting.)

[minimoke]

Just semantics, FP.

Semantics are very important - especially when it comes to tax policy. After 9 years in opposition I would have thought Labour had loads of time to figure out the semantics. But no - they need a Working Group.