Capital Gains On Rentals On The Way?

[ari]

quote:National believes Finance Minister Michael Cullen is paving the way for a capital gains tax on rental properties.

Dr Cullen has suggested he is looking at a number of options to dampen down the economy but says no decisions have been made.

However National's finance spokesman John Key says it is unusual for a finance minister to speak so openly and he believes tough measures are on the way.

Mr Key believes the capital gains tax will go on investment properties in an effort to slow down the housing market.

[minimoke]

quote:Originally posted by ari

quote:National believes Finance Minister Michael Cullen is paving the way for a capital gains tax on rental properties.

Dr Cullen has suggested he is looking at a number of options to dampen down the economy but says no decisions have been made.

However National's finance spokesman John Key says it is unusual for a finance minister to speak so openly and he believes tough measures are on the way.

Mr Key believes the capital gains tax will go on investment properties in an effort to slow down the housing market.

This wouldn’t surprise me at all. CGT is a thorny area but most landlords are encouraged to talk about the income (and consequently profit) they expect to make out of their investment. This approach helps them to pass over the CGT radar.

Trouble is, we now have a govt that wants more cash, wants to slow the housing market and I suspect also give those filthy capitalists in the property market a good kick where it hurts.

With increased rents and a growing supply of rental stock it will be harder for landlords to prove they were in it for the income and not for the capital gain – opening up another mine of cash for the govt to plunder.

MC does have to go and see his housing Minister though and ask for the current value of all the Housing Corp (or whatever they are called now) rental the govt holds. Add to this local council stock (and the resultant impact on ratepayers) he may find this is not as easy as he thinks.

[CJ]

It wont hve the effect he desires as most people buy and hold. They cant tax stuff from prior to announcement (surely - otherwise that home you bought 30 years ago for $10k is going to be hard to sell) so it will just stop traders, who are taxed anyway (if they dont do tax evasion!).

However with the potential changes to overseas investments, surely they should just stop pissing around and consider a broad raning CGT regime to avoid market distortions.

[Gryffyn]

Yup, it's a distorted playing field and some form of cp gains on non-occupied housing would change us form speculators to investors. All for it.

[KJ]

I would have thought that anyone buying a rental property,using negative gearing,would be liable to pay tax on the profit when sold,as the reason for buying in the first place would have been to make a profit.

[Steve]

Not necessarily, as negative gearing implies that (initially) there is going to be a loss. Over time as rents increase and depreciation decreases the loss will become a profit...

The only tax on profit when sold would be from depreciation recovered, which is a timing issue anyway.

[KJ]

I agree with you in that it could work that way for those who hold for a very long time.I think that there are many instances where people buy several rental properties,with no deposit in many instances.
eg borrow $400k @ 8%-interest $32k plus rates/R&M etc-another $10k.Total cash outgoings $42k(excluding Depn)Rent say $20k pa.

Might hard to convince IRD that you bought a business that was ever going to be profitable.

[duncan macgregor]

quote:Originally posted by KJ

I agree with you in that it could work that way for those who hold for a very long time.I think that there are many instances where people buy several rental properties,with no deposit in many instances.
eg borrow $400k @ 8%-interest $32k plus rates/R&M etc-another $10k.Total cash outgoings $42k(excluding Depn)Rent say $20k pa.

Might hard to convince IRD that you bought a business that was ever going to be profitable.

You are not required to show a profit running any business.
It all gets totaled up when you sell, its pay back time then if you are in credit. Tax is only on realized profit less expences so if you are silly enough to lose money when you draw the bottom line the tax man will laugh at your stupidity along with every one else.
macdunk

[KJ]

quote:Originally posted by duncan macgregor

quote:Originally posted by KJ

I agree with you in that it could work that way for those who hold for a very long time.I think that there are many instances where people buy several rental properties,with no deposit in many instances.
eg borrow $400k @ 8%-interest $32k plus rates/R&M etc-another $10k.Total cash outgoings $42k(excluding Depn)Rent say $20k pa.

Might hard to convince IRD that you bought a business that was ever going to be profitable.

You are not required to show a profit running any business.
It all gets totaled up when you sell, its pay back time then if you are in credit. Tax is only on realized profit less expences so if you are silly enough to lose money when you draw the bottom line the tax man will laugh at your stupidity along with every one else.
macdunk

Duncan-not sure that I understand you.

For example-if you had bought say 3 properties as in my example,say 5 yrs ago,and sold recently,one would imagine,for a healthy capital profit,do you think that the profit is taxable?

Re IRD-my point was that if it is obvious that it was never going to be profitable, IRD could say that your dominant reason for buying was to resell at a profit-and hence the capital gain is taxable.

[duncan macgregor]

KJ, When you sell at a profit it is taxable. You can build a business up without selling. Lets have an example. I paid 20c for a pine tree claimed the gst back, less the cost from my income as a business expence. I also claim the gst back on the rates that that tree grows on. That pine tree is not making a profit until i cut it down and sell it, then i pay gst back on the sell price and income tax on the profit. YOU GOTTA PAY THE PIPER AT THE END WHEN THE RACKET STOPS. Macdunk
Sorry i think they were 18c