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  1. #16
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    If you transfer shares in a LAQC (holding property) you don't trigger the claw back.

  2. #17
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    ...when i started investing in rentals 30 + years ago...I had never heard of a LAQC....I new there were a few advantages like leverage and capital gains...but the main reason for investing in houses was because i did not trust ...blokes in suits...like brokers,money managers,advisers,R Jones and his ilk....in fact thats what really peeves me off ..the "powers that be" have been screaming at us to forget rentals and invest in business's etc....but to a great extent how have the likes of doug-somers,watson,hotchin,feltex,bridgecorp,dnz et al have all been permitted to flourish and end the investing career.s of so many...I believe that regulations about disclosure,related party borrowings and the like have never been stingent enough to convince folk to change there views.
    Mr Weldon may well think the market is distorted...he still is a young chap...and lastly I believe that this whole debate has arisen as more and more NZ ers focus on investment strategies and tax implications.
    30 years ago i cannot recall if investment entities were established solely for the purposes of tax minimsation/avoidance...like trinity,LAQC and the like....

  3. #18
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    Default Depreciation

    Quote Originally Posted by Wilkins_Micawber View Post
    But you have it both ways - you deduct the expense of the repairs AND claim depreciation on the items being repaired. I only disagree with the ability to claim depreciation on the buildings as they do not really depreciate (providing that normal repairs and maintenance are carried out).
    I am not sure where you are comming from, but if you replace a kitchen bench, this is a capital item to be depreciated and not an expense to be claimed against your taxable income.

  4. #19
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    Invest in business like PGW ? PGC ? or SKL ? or FTX ??? Or would rather buy a rental and sit tight regardless ?
    I bought a rental for 140k 10 yrs ago and it's RV is 300k, I bought another one for 340k 3 yrs ago and its RV is 380k. The rents are $300 and $340 a week.
    I bought PGW at $2, worth $0.58; PGW $2.50 worth $0.48; SKL $1.15 worth $0.51 and FTX $0.70 worth $0.000.
    You be the judge which better business or brick and mortar.

  5. #20
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    Quote Originally Posted by Jess9 View Post
    Interesting point, but as noted above the real test is how much it costs to replace the old house, not what you would get for it if sold as is. The difference from your past cost in the latter is inflation, and the imbalance of demand over supply. More noticeable in dollar terms over a extended period of time.

    Mark Weldon was very negative on property investment and use of LAQC's in the paper the other day. Don't see the problem myself. Depreciation is claimed by all businesses. Its just more noticeable for providers of rental property as this is a big part of the cost of provision of accommodation - for obvious reasons.

    His beef was with offsets against salary and wages for tax purposes. I guess he wants the wage and salary tax base as extensive as possible so that the government can afford to reduce coy tax rates?? It all boils down to an allocation bun fight and guess who always wins. A fine example of Financial Darwinisiam ; )

    Obviously no-one's told Mark that some of the good folk might be investing their EOY tax wefunds after the LAQC losses get deducted, into NZX companies thus helping to pay his CEO Salary

    Perhaps he might like to work a bit harder this year on getting an increased variety of offerings on the board, so the good folk dont get so tempted to look at more bricks & mortar after seeing the limited and shrinking range of tasty morsels on offer on the NZX menu
    Last edited by nztx; 04-01-2010 at 10:56 AM.

  6. #21
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    Quote Originally Posted by Jim View Post
    Invest in business like PGW ? PGC ? or SKL ? or FTX ??? Or would rather buy a rental and sit tight regardless ?
    I bought a rental for 140k 10 yrs ago and it's RV is 300k, I bought another one for 340k 3 yrs ago and its RV is 380k. The rents are $300 and $340 a week.
    I bought PGW at $2, worth $0.58; PGW $2.50 worth $0.48; SKL $1.15 worth $0.51 and FTX $0.70 worth $0.000.
    You be the judge which better business or brick and mortar.
    If your latest purchase is worth 380,000 there could be a gain of 40k. That's fine as long as your losses don't exceed that, but an income of 17k against 340k is an extremely low return. Add rates, insurance and maintenance and I'm sure you'll find you've bought the capital gain. You've possibly gained 13k a year, but almost certainly propped it up by more than that. Still - good compulsory saving.

  7. #22
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    The use of an LAQC does not show very much advantage over holding assets in your personal name. Whilst an LAQC offers the illusion of limited liability, the fact is on property, the major creditor of the LAQC is the mortgagee who of course requires a personal guaranteefrom the shareholders.

    The simplist thing for govt to do (as per Muldoon on special partnerships) is to quarantine the tax losses from property.

    As a financial planner I wrote a paper for my Uni on why property was a preferred NZ investment habitat. It was not just tax but a combo of other things like low price volatility, low market noise, ability to add value through sweat labour, ease of leveraging, direct control of asset, easy to understand sector.

    I hold all sorts of assets but I would have to say proerty is the one that taxes my emotions least. Shares are very voltaile all sorts of director clowns trash value and I dont have some pundit telling me each night how stupid I have been. I take a very long term view. I have yet to be convinced thats its a great performer but my study of Tauranga over 2 decades suggested performance was right up there over the longer term.

    Also the existance of a CG tax wont solve the asset allocation problem. What we need is good performance on the other asset classes rather try to tax property back to the mediaocre performance of the others.Have a look at UK and Australia of which have CG and other property related taxes.

  8. #23
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    Good comments Dubdee.
    Your uni paper has pressed the right buttons. With over 20 years of property investment I have found it to be the best asset class for wealth creation and a preference because of the reasons you listed. Even the lack of liquidity can be overcome through revolving credit secured against property. However let's not get into the shares vs property arguments again.

  9. #24
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    I have spent considerable time quizzing my tax accountant on the distinction between capital improvement and repairs on property. In addition to giving me his view he also provided the key case law.

    If the work repairs the property back to maintain current income its an expense. I would argue the kitchen bench example is a repair as it is necessary to maintain current rental income. Its okay to replace old technolgy with new, provided same functionality is maintained.

    Its capitalised if it improves the income capacity of the property, like adding a deck or new ensuite.

  10. #25
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    Quote Originally Posted by Dubdee View Post
    I have spent considerable time quizzing my tax accountant on the distinction between capital improvement and repairs on property. In addition to giving me his view he also provided the key case law.

    If the work repairs the property back to maintain current income its an expense. I would argue the kitchen bench example is a repair as it is necessary to maintain current rental income. Its okay to replace old technolgy with new, provided same functionality is maintained.

    Its capitalised if it improves the income capacity of the property, like adding a deck or new ensuite.
    It is far from that simple, and a lot depends on length of ownership. For instance if you buy a property and six months later reroof it; the IRD will almost certainly rule this as a capital expense that would have been calculated into the price paid by the buyer. So the property was purchased at a discount and the new roof simply adds to the capital. However if you reroof a propeerty after twenty years of ownership you are far more likely to get away with claiming it as R and M. In general the same applies to a kitchen bench. But while there are guidelines, firm hard and fast answers aren't easily obtained. Caution, and dare I say a little imagination, in the way your accounts are written out will help. The word 'repair' looks better than 'replace', and a large bill for plumbing work looks better if the new bench and joinery isn't precisely itemised. But don't push you luck too far with that sort of thing. .

  11. #26
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    Quote Originally Posted by fungus pudding View Post
    It is far from that simple, and a lot depends on length of ownership. For instance if you buy a property and six months later reroof it; the IRD will almost certainly rule this as a capital expense that would have been calculated into the price paid by the buyer. So the property was purchased at a discount and the new roof simply adds to the capital. However if you reroof a propeerty after twenty years of ownership you are far more likely to get away with claiming it as R and M. In general the same applies to a kitchen bench. But while there are guidelines, firm hard and fast answers aren't easily obtained. Caution, and dare I say a little imagination, in the way your accounts are written out will help. The word 'repair' looks better than 'replace', and a large bill for plumbing work looks better if the new bench and joinery isn't precisely itemised. But don't push you luck too far with that sort of thing. .
    I agree that any work done witin 6 months or so of purchase needs to be capitalised under the concept I think delapidation.

    Also another trick for players in property is deemed depreciation. If you have an investment property and not formally elected not to depreciate it, then the IRD will deem that a depreciation clawback will be applied to the sale proceeds not withstanding that no depreciation was ever claimed. So for tax purpose you must claim depreciation or formally notify IRD of your decision not to do so.

  12. #27
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    some sections under subpart EE of the Income Tax Act actually over-ride the capital limitation of DA1.. for example assets bought on capital account can be depreciated by 100% in the year of acquisition if the value is 500 or less..

    and as dubdee says their needs to be a nexus between income and expenditure in order for expenses to be deductible. however you can have apportionment as well.. (Banks v CIR) the IRD's Tax Information Bulletin (May 1994) also states that you can deduct 50% of your home telephone line rental if you run a business from home..the average landlord should be able to claim this.

    the IRD has many anti-avoidance provisions at its disposal under the income tax act and the tax administration act.

    LAQC's will not last very long, the IRD will soon get rid of them as its confusing for overseas investors, the introduction of the Limited Partnershps Act (2008) will be the sexy new investment vehicle of choice.

    i believe equities beat property hands down if you indexed the gains on a diversified portfolio of the NZX15 over the long run, but each to their own

  13. #28
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    Quote Originally Posted by Dubdee View Post
    I agree that any work done witin 6 months or so of purchase needs to be capitalised under the concept I think delapidation.

    Also another trick for players in property is deemed depreciation. If you have an investment property and not formally elected not to depreciate it, then the IRD will deem that a depreciation clawback will be applied to the sale proceeds not withstanding that no depreciation was ever claimed. So for tax purpose you must claim depreciation or formally notify IRD of your decision not to do so.
    I've never heard of that and don't understand it. On a sale tax is paid on depreciation that has been claimed, but then recovered; so it's hard to imagine how any tax could be calculated when no claim was made and therefore nothing recovered. I think you've got something a bit haywire there.
    My concern with not claiming depreciation is that it almost amounts to an admission that the purpose in buying the property is to resell it. Remember it's intent that exempts the deal from forming taxable income. Anyway it's ridiculous to pay tax rather than use the legitimate option of deferring it.

  14. #29
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    Quote Originally Posted by underground View Post
    some sections under subpart EE of the Income Tax Act actually over-ride the capital limitation of DA1.. for example assets bought on capital account can be depreciated by 100% in the year of acquisition if the value is 500 or less..

    and as dubdee says their needs to be a nexus between income and expenditure in order for expenses to be deductible. however you can have apportionment as well.. (Banks v CIR) the IRD's Tax Information Bulletin (May 1994) also states that you can deduct 50% of your home telephone line rental if you run a business from home..the average landlord should be able to claim this.
    Not that simple. Being a landlord is ]NOT[/U] a business in the eyes of the IRD.

  15. #30
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    Here's a silly question but shouldn't this thread appear under "Property Investment" not "NZX"?


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