Auckland housing market

[Bjauck]

How about this as a way to cool off and consolidate "overpriced" residential property markets:
It would be even more of a political liability than CGT, but an imputed interest tax would help even the field between financial investment and investment in real estate. Because of tax on investment income there is a bias in our system towards buying as expensive an owner-occupied home as possible. Owner occupied homes are untaxed as to both capital gain AND the annual benefit of occupying rent-free. You are at a tax disadvantage if you want to rent whilst investing your capital in productive assets, whose returns or interest are taxable at your marginal rate of income tax. In addition if you invest your money in a financial arrangement that has capital appreciation. the capital profit is taxed unlike capital profit on your home. You then have to pay your rent out of tax-paid income. On the other hand, the benefit derived from your investment in your own home is untaxed.

If there were a tax on the interest foregone on the equity in your own home, that would help overcome the in-built bias from the tax system towards home ownership. It would have a greater imposition on those people who own their own expensive homes without a mortgage and the least effect on first home buyers buying a modest home with a small amount of equity in their home.The imputed interest rate would be similar to a 5-year bank deposit rate.

This imputed interest scheme could be introduced gradually along with reductions in other taxes...along the lines of the introduction of GST. However this will never happen. The inbuilt tax bias to as-expensive-as-possible home ownership will no doubt continue.

*Owners equity could be calculated either historically (what you actually paid less any outstanding mortgage priincipal) or by more subjective council-type revaluations.

*Rates are a broader based tax levied on all property (not just owner occupied property) and they are charges for the use of council services not an investment tax on the equity in the property. As a proportion of the property value they vary throughout the country. Similarly the fixed or uniform charge component varies.

[G on]

Another way is to apply the FDR to all houses just like FIF shares!!!!! Would only take a few extra words attached to the tax legislation. That would wake people up!

[Bjauck]

Another way is to apply the FDR to all houses just like FIF shares!!!!! Would only take a few extra words attached to the tax legislation. That would wake people up!

That sounds a good concept! I guess with FDR applied to share valuations, share valuations can be easily determined by referring to trading prices on stock markets. However valuing individual properties is not so easy and open to objections.

On the other hand, referring to actual price paid for the property plus capital additions less outstanding mortgage would reflect actual equity that could otherwise have been deployed in a productive (yet tax-incurring) investment.

[fungus pudding]

How about changing the whole deductability method to making mortgage interest deductable for a property you actually live in for more than 9 months of the year, but not on any other property? This would help with home ownership, but work against property as an investment.

That flies in the face of all accepted accounting practice. Tax is assessed on profit - not turnover. Further, iyt amounts to paying tax on money you haven't got. Makes it pretty hard to collect.

[Bjauck]

That flies in the face of all accepted accounting practice. Tax is assessed on profit - not turnover. Further, iyt amounts to paying tax on money you haven't got. Makes it pretty hard to collect.

Currently the NZ tax system can impute a 5% FDR on overseas FIF investments, even though their actual income may be less than that. If the FIF investment is subject to Forced comparative value assessment than the full unrealised change in value becomes assessable income. It is basically a tax on UNREALISED capital gain.

Also if you are subject to the accrual method of accounting for financial arrangements you can be deemed to earn a greater amount of interest than you actually received. Why should housing, both owner-occupied and rental, investment continue to have a tax advantage over productive investments?

Is it any wonder that wealthy New Zealanders continue to put their money in housing, both owner occupied and rental, when other investments encounter such tax disadvantages and complexities?

[fungus pudding]

Currently the NZ tax system can impute a 5% FDR on overseas FIF investments, even though their actual income may be less than that. If the FIF investment is subject to Forced comparative value assessment than the full unrealised change in value becomes assessable income. It is basically a tax on UNREALISED capital gain.

Also if you are subject to the accrual method of accounting for financial arrangements you can be deemed to earn a greater amount of interest than you actually received. Why should housing, both owner-occupied and rental, investment continue to have a tax advantage over productive investments?

Is it any wonder that wealthy New Zealanders continue to put their money in housing, both owner occupied and rental, when other investments encounter such tax disadvantages and complexities?

The tax treatment of real estate is no different from tax treatment of any other NZ investments. Owner occupied housing is not generally considered an investment. Some wealthy NZers no doubt dabble in residential housing, but I suspect (after an initial dabble)) most would run a mile. It's more suited to a DIY type who can work all night cleaning up, repairing and and patching up after tenants, leaving his/her daylight hours free to deal with debt collectors, private detectives, police and drug squad, attend tenancy tribunals and the like.

[Bjauck]

The tax treatment of real estate is no different from tax treatment of any other NZ investments. Owner occupied housing is not generally considered an investment. Some wealthy NZers no doubt dabble in residential housing, but I suspect (after an initial dabble)) most would run a mile. It's more suited to a DIY type who can work all night cleaning up, repairing and and patching up after tenants, leaving his/her daylight hours free to deal with debt collectors, private detectives, police and drug squad, attend tenancy tribunals and the like.

If you invest in NZ financial arrangements you are taxed on both capital profits and interest...any gain in value. If your arrangement is over a certain value, in any one year, you can be taxed on income and unrealised capital appreciation accrual even if no income is actually received by you. Just imagine if that applied to investment properties! Overseas investments, NZ bonds and other financial arrangements (NZ and overseas) all have capital gains taxation in some form.

In addition to owning a home, owner occupied housing is treated as an investment by many Kiwis. Many Kiwis have treated their homes as rungs on a ladder, using mortgages to leverage up their equity, with the capital gains remaining untaxed and the accommodation benefit from their equity untaxed of course. It has been a de facto retirement scheme by many especially in the absence of an offical financial retirement plan until Kiwisaver belatedly came along.

[fungus pudding]

If you invest in NZ financial arrangements you are taxed on both capital profits and interest...any gain in value. If your arrangement is over a certain value, in any one year, you can be taxed on income and unrealised capital appreciation accrual even if no income is actually received by you. Just imagine if that applied to investment properties! Overseas investments, NZ bonds and other financial arrangements (NZ and overseas) all have capital gains taxation in some form.

Owner occupied housing is treated as an investment by many Kiwis. Many Kiwis have treated their homes as rungs on a ladder, using mortgages to leverage up their equity, with the capital gains remaining untaxed and the accommodation benefit from their equity untaxed of course. It has been a de facto retirement scheme by many especially in the absence of an offical financial retirement plan until Kiwisaver belatedly came along.

'
You will be not taxed if you invest in 'NZ financial arrangements' that are not traders, you will be taxed only on income. Be selective.

[Bjauck]

'
You will be not taxed if you invest in 'NZ financial arrangements' that are not traders, you will be taxed only on income. Be selective.

Are you an accountant? If Roger is reading this maybe he can add to the discussion?

I am not being selective. I am sure any financial arrangement, local or overseas is covered by the financial arrangement rules - you do not need to be a trader. You will be under the taxation of financial arrangement rules even if you have just one financial arrangement, which you hold for many years.

It is incorrect to say there is no tax on capital gains in this country on individuals who hold assets long term and who are not "traders". Capital gains on many financial investments, including fixed interest and overseas equities (FIF rules are complex and have some Australian exemptions) are taxed at the owner's marginal income tax rate. There is therefore a tax-bias in favour of those investments, including real estate, that do not currently have a tax on their capital profits.

DYOR

This link is informative. http://www.interest.co.nz/opinion/72...ght-mean-risin

[Valuegrowth]

mmmm...I listened to Mr Gaynor talking at a recent meeting of folk....If Im correct he indicated that Auckland "house prices" are fairly in line with overseas seas cities performances....perhaps even Auckland has been less spectacular ..than some....Yes I and most posters would agree this is nuts....BUT would anyone stand in front of a moving train...that hasn't stopped for at least a hundred years (in NZ anyways).

Roger vorno Entrep ..all good stuff.

Dear MW...do you own property...how long for...I have for decades...I could go on here...but I wont.Cheers anyway.

PS....remember the old saying "they aint making anymore of the stuff (land) except of course in Holland.

Dear Troyvdh...Yes I own a property. I think I bought it too late. I believe in asset cycles.