Labour govt 2020-23

[Panda-NZ-]

How is removing a tax deduction a new tax?

[stoploss]

I think it's a loop hole. ANY time you can deduct 1 source of income from an unrelated expense like mortgage interest is a loophole.

As for allowing mortgage interest expense to apply on the personal primary resident home? In the USA, there are limited on how much one can deduct this expense off their personal 'taxable income'. HOWEVER, like Australia & Canada, the USA has Capital Gains Tax on the sale of any home including their primary residence home. How is this fair in the NZ perspective when landlords after 5 years, can sell their asset (the house) for 100% tax free capital gain?

Again I applaud what Jacinda is doing. Ever since I came to NZ, it didn't seem fair how the majority of wealth in NZ has come from the backs of rising house prices. The term 'Negative Gearing' too was something I had to learn as it's never allowed in Canada and as I mentioned in other threads, the issue of leveraging is a problem.

Let me explain the distinction of other business ventures. When a company or small business closes up, ANY assets that have appreciated in value is taxed on the gain. Likewise with disposing depreciated assets like vehicles. The residual value too is taxed. On the asset side of the balance sheet, such as inventory is also taxed. So tell my why is it that an individual can own multiple homes rented out, can end up paying NO tax on the capital gain after 5 or 10 or 20 years??? Because this certainly is not the case in a small business.

But above all, here are the startling stats that got me off the chair in Jacinda's announcement:

1) by year end of 2020, 40% of ALL houses purchases was made by those who already owned multiple properties. (meaning, there's no way a 1st home buyer can compete. Buyers of houses for the sole purpose of renting out and investing will always pay more)


2) and from June to Nov 2020, the level of mortgage borrowing by these 'property investors' had increased by 116%. (no surprise here with record low mortgage rates, I saw as low as 2% last year)


3) From 1991 to 2019, NZ experienced the HIGHEST real growth of housing prices in the OECD !!! (Yes higher than places like Vancouver Canada and my friends are crying there)


4) Since last year, 15,000 houses were purchased by people who ALREADY owned 5 (FIVE) or more houses !!!



If you ask me, all these people owning multiple houses deserve it. They pushed up house prices so fast to unprecedented levels that any current gov't had to pull the levers.

and if you think the 'use' of house is complex in NZ. Look at Canada. If you rent a portion of your primary resident home out (ie basement, spare bedroom etc). Then the tax laws states THAT % proportion of the home is no longer counted towards tax free capital gain from that time onward. So people rent the whole basement out which can account to 50% of the proportion size of the home which means at time of sale in the long term future ; 50% of the capital gain becomes income taxable (off your principle resident home). What i'm saying is that the gov't of NZ has many options to do and can go down the path like Canada has done.

SBQ maybe read this yet again you are wrong
https://www.nzherald.co.nz/nz/no-tax...BZ36DU2GMOBUI/

[jonu]

How is removing a tax deduction a new tax?

Um....because you are paying tax on something you didn't have to before....and don't have to in any other business.

[SBQ]

SBQ maybe read this yet again you are wrong
https://www.nzherald.co.nz/nz/no-tax...BZ36DU2GMOBUI/

You are referencing the very guy that was part of the Tax Working Group that advised Jacinda that NZ needed some form of CGT. But if you think the sale of shares equates to the same as the sale of residential houses? I tend to disagree. The NZ housing market has turned into a meme investment for the past 40 years where the losers are those that can't save enough to own one one and the winners are the wealthy that could own more than one. This is a major difference than those that have lost on share investments.

Yes I stand corrected that NZ does not have a CGT on the sale of appreciated assets. However, when everyone knows that an asset like homes always go up in value ; this is certainty not the same as believing investments in NZ shares also go up in value (it's an entirely different risk level and not a necessity like a roof over your head). Too many landlords have gamed the system, exploited houses for their benefit to profit for retirement.

Got to be a special kind of person to believe houses are investment tools to profiting.

[jonu]

You raise an interesting point SBQ. The assumption that house prices always go up....which is probably true in the long term. However if there is a correction to a bubble (perhaps debt default contagion in Europe....remember PIGS anyone?) and the government could be on the wrong side of the equation.

Post GFC through to about 2012/13 prices in provincial and coastal NZ took a mighty tumble.

[fungus pudding]

You raise an interesting point SBQ. The assumption that house prices always go up....which is probably true in the long term.

It is not true in the long term, or in the short term. While there is generally a nominal gain, houses and buildings definitely depreciate in real terms- always.

[artemis]

It is not true in the long term, or in the short term. While there is generally a nominal gain, houses and buildings definitely depreciate in real terms- always.

Good point, and a key reason land prices increase is local government decisions. Change those decisions and see land prices fall.

[SBQ]

It is not true in the long term, or in the short term. While there is generally a nominal gain, houses and buildings definitely depreciate in real terms- always.

As our family lawyer once told us long ago, "You can't separate the house from the land it sits on" meaning, property titles and rates bills include the land + capital improvements. No one that buys a piece of property goes under the assumption that their purchase will decrease in price ; you can take that to the bank.

Would it be fair to say since last year, house prices that went up over 20% is well in excess of the CPI / inflation rate in this short term period?

I should thank all those property investors that jumped into buying houses. If the house price rise was only a meager 5%, then the Labour Party would of just let it go.

[fungus pudding]

As our family lawyer once told us long ago, "You can't separate the house from the land it sits on" meaning, property titles and rates bills include the land + capital improvements. No one that buys a piece of property goes under the assumption that their purchase will decrease in price ; you can take that to the bank.

Would it be fair to say since last year, house prices that went up over 20% is well in excess of the CPI / inflation rate in this short term period?

I should thank all those property investors that jumped into buying houses. If the house price rise was only a meager 5%, then the Labour Party would of just let it go.

It won't decrease in price (nominal) but it will decrease in value (real).
If it were possible to buy a block of land - split in two, and build a house on one - leaving the other half vacant. Fifty years later pull out the plans and build a brand new carbon copy of the first house. The new one will be worth considerably more. That is because the first one will have depreciated.
But it's not just at 50 years. It happens throughout the life of the building. The reason recent price rises went up in excess of 20% is because they were too cheap - the market was caught sleeping. New homes sell on a cost plus basis, whereas existing homes sell on a comparative basis, which is often lagging. The real estate market is largely a second hand market so will always have fits and starts.

[Zaphod]

As our family lawyer once told us long ago, "You can't separate the house from the land it sits on" meaning, property titles and rates bills include the land + capital improvements. No one that buys a piece of property goes under the assumption that their purchase will decrease in price ; you can take that to the bank.

One of our more distant relatives owns a house under the scenario you outline above; they own the dwelling, but not the property which is leasehold. They receive two rates notices, one for the capital improvements (dwelling) and one via the land owner for the land itself. They are currently concerned about the depreciation of value on the house, as it is quite old, and people are actively avoiding purchasing properties under leasehold situations.