Would Dr Cullen introduce the ring fencing tax?

[rollypolly]

This is my 2c opinion.

I believe he will do it.

Dr Cullen has gave an additional 14.6m to IRD to boost up resources for property tax investigations.

These are my assumptions
1. 200,000 property investors
2. each one of them save on average $2,000 because of the tax loophole.
3. Say Dr Cullen introduce this ring fencing tax.

How does that generate revenue for the government? More assumptions, say each investor can now only claim $1,000 instead of $2,000 tax loss. That means, the government stand to gain

200,000 X 1,000 = $200,000,000 extra pocket money.


What do you think?

[The Doctor]

not a hope..polling bad..would get worse...!

[rollypolly]

200,000 might be pissed off, but the rest of the population could be happy

[bigbear]

agree with the good doctor.
more hot air from dr c.
problem is a lot of labour voters hold rental properties so annoying 200k national voters would not matter but 50k labour voters...
thats why wealth tax on overseas shares is ok, few labour voters see this as affecting them.
too much concern re house values in NZ anyway in my view anyway.
so no to anything that would impact on ordinary punters heading into an election year would be my view.

[CJ]

The IRD has admited that rentals are not given any tax advantage (the rules are the same for everyone - property, shares, business). To introduce ring fenceing would be bad for the tax system - ie. not removing an incentive but introducing a disincentive.

[coge]

The LAQC arrangement effectively subsidises tenants rents, so it could be argued to have social benefits. Tinkering with it will remove that subsidy. No wonder yields are low. My accountant just got back from a seminar where the IRD were jumping up & down & beating their chests about it all. In effect getting putting the fear of God into the poor accountants. Hopefully this will wear off in a while.

[Halebop]

quote:Originally posted by CJ

The IRD has admited that rentals are not given any tax advantage (the rules are the same for everyone - property, shares, business). To introduce ring fenceing would be bad for the tax system - ie. not removing an incentive but introducing a disincentive.

I'd be intrigued to discover how I deduct depreciation against my appreciating share portfolio to reduce my personal income tax?

[marcer]

quote:Originally posted by Halebop

quote:Originally posted by CJ

The IRD has admited that rentals are not given any tax advantage (the rules are the same for everyone - property, shares, business). To introduce ring fenceing would be bad for the tax system - ie. not removing an incentive but introducing a disincentive.

I'd be intrigued to discover how I deduct depreciation against my appreciating share portfolio to reduce my personal income tax?

If I want to buy a rental property and have $40,000 or $50,000 equity in my house the bank manager will likely fall off his chair helping me to borrow $300,000 for a rental house

If I have $40,000 or $50,000 and wish to borrow $300,000 to buy shares, the bank manager is more likely to fall off the chair laughing.

Also - I would imagine that quite a few rentals these days run at a loss, for more than a few years. How many people would buy a business they knew would run at a loss for the immediate future? Not many.

Therefore quite a few rental investors are actually relying on capital gain to make money - but are not taxed on it unless it 'they purchased the property(s) with intention to sell at a higher price'.

Technically there is no taxation favour to rental property owners, but from a practical and real view point property investors do enjoy a favourable tax status.

[CJ]

[quote]quote:Originally posted by marcer

quote:Originally posted by Halebop
I'd be intrigued to discover how I deduct depreciation against my appreciating share portfolio to reduce my personal income tax?

Shares aren't a depreciating asset. But the company that the shares are in are definately claiming depreciation on any assets they own. How much depreciation does Skycity or AIA claim. You dont claim it as they are claiming it on your behalf.

Originally posted by marcer
If I want to buy a rental property and have $40,000 or $50,000 equity in my house the bank manager will likely fall off his chair helping me to borrow $300,000 for a rental house

If I have $40,000 or $50,000 and wish to borrow $300,000 to buy shares, the bank manager is more likely to fall off the chair laughing.

This is the banking system, not the tax system providing the benefit.

[Halebop]

quote:Originally posted by CJ

Shares aren't a depreciating asset.

Tell that to RBD investors! []

quote:Originally posted by CJ

But the company that the shares are in are definately claiming depreciation on any assets they own. How much depreciation does Skycity or AIA claim. You dont claim it as they are claiming it on your behalf.

The company claims depreciation against trading profits which has the effect of reducing tax (although the economic value of plant will probably diminish over time so the expense and tax outcome is approximately accurate). Property investors on the other hand use structure to intentionally effect the worst possible trading outcome in order to declare trading losses. They then use this loss to offset against wage earnings. Yet over time they will expect to sell the property for a higher market value, a quite different outcome to truly depreciating plant and equipment. This is manifestly not comparing apples with apples.

In addition, the company then pays 30% tax on earnings before declaring a dividend. If my marginal tax rate is 39%, I then pay an additional portion of tax. But with property trading losses (this need not even be negatively geared, just so long as depreciation takes me into loss), I instead reduce my income tax by a 39% portion of the loss. Again, there is no apples with apples comparison here.

Anyone who says they are the same does not understand how the confluence of cash flow and marginal taxation work to impact (i.e. skew) investment decision making.