What change will we see to property taxation?

[Arbitrage]

I agree with your observations MM. This little distraction will go the same way as other issues the Act Party has asked to be reviewed. When the Minister of Finance is a property investor himself (or his various Trusts and LAQC's), what chance will a proposed change in the present situation have?

[nztx]

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Some camps mightn't discount some sort of munted or mungled version of a deemed % return on cost for assessment of a deemed tax - since this hybrid has been applied in other areas - such as offshore share investment returns in certain circumstances.

As much as it irrespectively imposes taxes on capital regardless of whether an actual return or not or out of capital for being in the market, it might be a solution of sorts for something that might otherwise hit the "too hard basket"

A first attack on depreciation claims was some years ago on Building Losses on disposal becoming non deductible generally & assessibility of depreciation recoveries I vaguely remember.

There is little question that over considerable time there must be adjustment for loss in value on structures as newer are built along & older structures become delapidated or outdate standards without upgrading / remodernising

[nztx]

It's hard to see a rort. All plant and equipment in any other taxable activity is allowed to claim depreciation - why should it not be allowed on buildings?

Agreed .. they are part of an income generating Asset base, therefore depreciation should be allowed

[nztx]

The improvements no doubt move below replacement cost - but it appears property buyers are prepared to pay a premium for those improvements at the time of sale/purchase. In the end it is the owner at the time of replacement that bears the cost of replacement - previous owners have had the depreciation.

Its probably about time for residential rental owners to look at rentals as a revenue opportunity rather than a tax vehicle. This is wheer I think cjages to teh tax system can be made - but it won't be easy and there will be fall out.

The very tax rates differentials & structuring over a long period have conditioned many to look upon things from a tax planning perspective.

Successive Govts have had more than ample opportunity to further address tax rates, moreso in the past decade but have shown themselves to be more happy to sit on their hands and do little or anything.

LAQC Abuse is one area which needed looking at, but looking at the whole sector tends to pang of sniffing out more Govt Revenue than anything else and something better addressed by Govt getting it's own expenditure cut back into shape rather than finding further means to maintain it.

[mikeo]

They will introduce the risk free rate of return on rental property. The government has been softening the public up for so long that they will do something here and this looks most likely. I don't think this will be a vote loser overall, in fact it will probably go down pretty well with a lot of people who see property investors as greedy rich tax avoiding b#stards (they may be right in a lot of cases but PI's aren't the only ones, just easy targets).

They will make a big deal out of NOT introducing any property tax on owner occupied property but this may apply to second properties including rentals.

The really interesting thing will be what happens with GST. That could well be a vote destroyer. Particularly for low and middle income earners who are unlikely to see any benefit from tax relief on the upper brackets. I would have thought that a lot of middle income earners vote National but certainly increased GST would be more than offset by tax relief for a lot of their support base.

[minimoke]

It's hard to see a rort. All plant and equipment in any other taxable activity is allowed to claim depreciation - why should it not be allowed on buildings?

It looks like IRD agrees with me. In todays paper 300 property investors are being targetted - and they will be only the tip of the iceberg.

Now don't get me worong, I'm all for tax payers taking responsibility for minimising their tax exposure. But residential rental investments aren't quite in the same league as a business owner with plant and equipment attempting to derive an income from his business. So many property "investors" use property not as a vehicle for creating an income but as an opportunity for reducing gross earnings. This then enables them to reduce their tax payments; increases their eligibility for Working For Families payments and some will even get a Community Services Card.

[CJ]

It looks like IRD agrees with me. In todays paper 300 property investors are being targetted - and they will be only the tip of the iceberg.

These 300 are people who bought and sold multiply properties in a year with an intention to profit.

As with shares, there is a pseudo captial gains when you intent to resell at profit. These people were clearly evading tax and can be distinguished from the M&D residential property investors who buy and hold long term.

[fungus pudding]

These 300 are people who bought and sold multiply properties in a year with an intention to profit.

As with shares, there is a pseudo captial gains when you intent to resell at profit. These people were clearly evading tax and can be distinguished from the M&D residential property investors who buy and hold long term.

It's not a pseudo vcapital gains tax. It simply forms part or all of their income and therefore attracts income tax. That seems to me the only problem - that it is not effectively enforced by IRD. They have all the power in the world to track and tax traders acting for gain by reselling, but they haven't bothered chasing it up since the 70s - they used to be right on the ball.

[minimoke]

.... when you intent to resell at profit.

And thats the point I've made previously about the M & D "investors".

What they have actually done is gone into rental property on the back of expected capital gain. If they were honest it wasn't for the income because yields on so many properties are so pitifully low they could have got more income by sticking their loot in the bank.

Sure, its not for IRD to question the decision making ability of the business owner but its not hard to see when someone purchased, made a cash loss and then flicked on for a capital gain. It also goes without saying that there are some residential rental owners who are in it for the long term - for them it will be easier to show they are in it for the income - but if you look at their books they will, on the whole, make more from the capital gain over time rather than the net income.

An outlandish statement some may say. But look at the median property 10 years ago. Valued at $170k. Today its worth $360k. Thats a $190k improvement or $365 a week. At very best you're only likely today to be grossing $360 a week in rent!.

Rental properties are a great "investment" which beats equities and otther investments hands down. You can borrow money from thee bank to fund your purchase and the interest costs go against your tax. You can personally depreciate the asset and gain the direct tax benifit your self (rather than it washing through a companies books and shared amongst the other shareholders); your gross incomes drops so you get governement handouts. Try that with money in a finance company or shares or metals!

And even if the bottom drops out of the property market you will never loose 100% of your investment (unless you are a dickhead and buy something in another city on a rent to buy basis and fail to insure your investment - then get a multi murderer living next to your property - and then have the local yobs burn your place down: but even then the benevolent council will come to some deal with you to get your land to build a park!)

[fungus pudding]

And even if the bottom drops out of the property market you will never loose 100% of your investment

That's not correct. Remember gearing works both ways. Go in with a 10% deposit and guess what happens if the market drops 10% ? Bingo - equity gone. And at 20% you've lost double your 'investment'. Which leaves you with a loss making 'investment' which you can ride out - if you can be bothered sustaining several years of losses. Or bite the bullet - pay a commission and some legal fees, sell the property and find a way of topping up the outstanding bank loan.