by frog
Labour MP Rick Barker blogged at Red Alert earlier this week in response to the Tax Working Group’s report:
There must be thousands of people … who own a house, flat, apartment which is their way of saving for that extra to help them with their retirement and good on them too.
I have told them that I have no inside information and know just what they do from the public record. They all feel put upon by the implication in the papers and from the commentary that somehow they have been gaming the system, ripping off taxes and are somehow directly or indirectly to blame for the “imbalance’ in the tax system.
These people have all worked hard. They have saved hard, forgone big holidays and other excesses in order to pay off their first house and then save for their second property, their retirement income.
All well and good, but what he omits to tell us is that they pay no tax on the capital gain on their investment property.
He also omits to tell us that there are others who own multiple rental properties which run at an operational loss and they offset that loss against their other income, thereby minimising their income tax, and often minimising their child support, and/or qualifying them for Working for Families as well. Then they make a whopping tax-free capital gain when they sell one of the properties.
I don’t agree with some of what the Tax Working Group has proposed, but I do agree they have identified a gaping hole in the tax base here that needs to be plugged.
Barker and the people he says he’s been talking to just don’t seem to get it that when you work hard and save you should still pay tax on your earnings! Why should one form of income be tax free? Why not wages too?
Published in Economy, Work, & Welfare | Featured by frog on Sat, February 6th, 2010
Tags: capital gains tax, property investment, Rick Barker, rort, tax, Tax Working Group
on the trolls and those who are unable to keep on topic
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You are joking right?
Personally my land lease is about to go up 400% and my rates 30% due to inflated values because of ONE investor in the streets around my house.
Tax the b@stards hard I say, why the hell should the rest of us become serfs to the lords of the land.
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Shunda,
If you are on a leasehold property then yes you are susceptable to the increases when leases come up for renewal.
Most people dont lease, the own outright so it is not an issue for a lease increase.
The benfit you have is to not renew the lease and move somewhere cheaper.
Seeing you are paying rates have you been silly and build a house on leased land?
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“Then they make a whopping tax-free capital gain when they sell one of the properties”
Not exactly; part of those losses come about through claiming depreciation. If you have owned a property for fifteen years, and you have claimed depreciation on it, then you are going to have to pay tens of thousands of dollars back to the taxman.
Not that it is going to make much difference; most rental investors don’t sell their properties unless they have good reason to do so. Also, what do you propose to do to help the renters who would inevitably suffer when their rents increase?
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Who would provide housing for improvished tenants if private investment in rental accomodation was reversed. The Government? If so, where does the money come from. Trees? No taxes. Why should taxpayers fund investment in rental accomodation? Feel like a merry-go-round to you?
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john-ston
Posted February 6, 2010 at 11:11 AM
“Not exactly; part of those losses come about through claiming depreciation. If you have owned a property for fifteen years, and you have claimed depreciation on it, then you are going to have to pay tens of thousands of dollars back to the taxman.”
I have no problem with people claiming depreciation on houses if the houses actually depreciate. But most of the time, houses are appreciating in value, so they should pay appreciation instead.
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The large number of people buying second and third and fourth houses has caused the housing bubble.
So NZ is working itself to death to buy houses and pay rent.
A large part of our working effort goes into housing, which produces absolutely nothing – zip, nada. We need to put our money into productive areas that actually earn the country money (instead of areas that actually COST us money)
NZ is little more than a working slave to to offshore banks.
No wonder, as a country our productivity is going down the drain – all we produce is profits for overseas banks.
And while we continue to do that, we will slip further and further behind Australia, and you can forget about large rises to the minimum or any other wage.
The scurge of housing “investment” must be stopped.
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Whilst you’ve got land supply constraint via the RMA and the councils, and 50K worth of compliance cost, not to mention developer compliance, housing is not going to get cheaper anytime soon.
Meanwhile, any capital gain/land tax is going straight on the rent.
Tenants will be paying higher accommodation costs.
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I think you’ll find the money will head offshore.
New Zealand is a very small market, which makes it risky. Offshore share markets with depth, and major foreign companies that have significant asset backing, are a much safer bet for ma and pa.
And let’s not forget Cullen’s stupid transaction tax, which makes investment in companies here even more of a joke.
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Photonz,
The tax situation is a cause for concern and so is the means by which they acquire finance, but how is someone owning multiple houses a problem? It is people owning many properties that allows young families to rent and students to flat. People have no need nor right to own their own home and thus the distribution of homes to owners is of little consequence so long as the home itself stands.
~
BP,
Not all of the capital gains tax and land tax can transfer to rent. Instead what you will get is an increased density as people band together to save money on rent. Those whom were renting a three bedroom house with two occupants will have three, those renting the same with two children will bring in a third person and put the children in the same room, students will go back home, etc.. Land values will decrease substantially and those whom are no longer profitable will go bust; the next buyers providing the cheaper accommodation required (probably at the same old prices).
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It is not investors that caused the property boom. Property is worth what people wish to pay for it. Investors (not speculators – who by law pay CGT) generally do the numbers quite hard on the purchase of a property and will drive a price as low as they can, ind if its not low enough don’t buy. The property’s value to these people is not in the land (which is appreciating) but in the sustainment of the building and chattels which creates the income in rent. These chattels do depreciate, especially with tenants who often do not maintain or care for things as one does their own property. In order to maintain the income from the property buildings need to me improved and chattels replaced, this is no different to any other business – lets keep it fair.
It is unfortunate that NZ has a passion for home ownership. This is inhibiting our ability to develop as a nation. It is increasing urban sprawl, taking away vast amounts of farmland, (creating a bubble) and home buyers fall in love with a liability and borrow extreme amounts to fund an item that they paid too much for. What we need is high quality, high density accommodation that is affordable and in the right locations. This would reduce travel times assist in producing an effective and cheep public transport system and reduce the cars on our roads. I am NOT talking about the shoe boxes currently making greedy speculators broke in Auckland, but rather quality 3-4 bedroom 2 bathroom condos like those found in many other cities around the world. We as a country cannot afford not to.
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BluePeter – Some of the money will head offshore, which is not a bad thing.
Because the profits will get repatriated here, and eventially so will the money and the capital gains.
That’s much better than wasting a hundred thousands dollars or more per household on inflated house prices.
Currently we’ve got $500,000 houses that are really only worth $300,000, but because so many people want to earn money from a rental the whole country has to borrow an ADDITIONAL $200,000 each from a foreign owned bank.
The house is exactly the same house it was. There’s no valid reason that it’s price should rocket up. It hasn’t got bigger, rents haven’t gone up massively.
It’s just artificially-created market forces.
We need taxation and regulation in place so that conditions are such that rental housing no longer causes a housing bubble that turns all of NZ into a slave for foreign banks.
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BP:
Which “Cullen’s stupid transaction tax”, please? I thought I was reasonably informed about tax in New Zealand, and am genuinely unaware of something that fits your description. Do you have a link?
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The definition of being a trader here – selling in and out of positions.
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Labour lining up behind the property speculators! Interesting.
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sapient – the problem isn’t with someone owning multiple houses.
The problem is with LOTS of people wanting to own multiple houses.
It causes prices to go up and up. And you end up with a typical situation where in a couple, one persons WHOLE wage goes to pay the mortgage to an overseas owned bank.
All that money, from every house owner or renter in the country, going into a sector that produces nothing. It’s real value doesn’t increase – it hasn’t changed in any way.
But NZ ends up paying more and more and more – for exactly the same houses.
Is it any wonder our productivity is getting further and further behind other countries? (and along with it, our wages).
If houses were much cheaper, everyone would save a fortune on mortgages and rent – it would be like everyone in the whole country getting a massive pay rise, which would be a massive benefit to the rest of the economy that actually produces things.
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Toad, they’re not in government, so they can play politics. I’d be surprised if there’s more to it than that.
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> I think you’ll find the money will head offshore.
There are three different scenarios:
1) Foreigners investing in NZ and taking away profits.
2) Kiwis investing in foreign countries and bringing back profits.
3) Kiwis investing in NZ.
For trade to balance, scenario 1 means there has to be more exports from New Zealand, and scenario 2 means there has to be more imports. So both mean more greenhouse gas emissions on shipping. Scenario 1 is the worst, because NZ, as a country loses wealth, and GHG emissions increase. Scenario 2 is next – NZ as a whole gains wealth (but it is poorly distributed), but GHG emissions increase. Scenario 3 is the best of all – it means less international shipping, although again a transfer of wealth from rich to poor.
At present, overall the property bubble is mainly driving scenario 1 – people take out loans from foreign banks, and use it to buy overpriced land. They then gradually pay the loan back with interest to the foreign bank, thereby transferring wealth to the foreign bank.
BluePeter is right that bursting the bubble might mean that there is then more of scenario 2 occurring, as people look to invest local money somewhere safe. However, this is still better than scenario 1. After the land bubble is fixed, the best way to get more of scenario 3 is to introduce resource taxes to fund government seed investment in small, local, sustainable co-operatives like this one: http://www.guardian.co.uk/society/2010/feb/03/martin-communal-food .
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sapient – it’s a good thing for people to own their own houses – there are a lot of benefits.
And it should be cheaper to own a house rather than rent.
On one hand, you have the costs of owning the house – essentially interest on the capital (and running costs, rate insurance maintenance).
For renting, you have exactly the same PLUS a profit.
We currently have the rediculous situation where a rental owner can rent their property for LESS than the cost to own it, because they don’t make their profit from the house – they make their profit from tax savings from the government.
That leads to overpricing of the housing market.
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A1kmm – you’ve over simplified things.
You say “1) Foreigners investing in NZ and taking away profits.
Scenario 1 is the worst, because NZ, as a country loses wealth, and GHG emissions increase.” (on shipping)”.
A lot of foreign investment is in companies like Contact Energy, or Telecom, who are not shipping goods overseas.
Also you don’t factor in that if a foreigner buys shares (or anything) from a New Zealander, then the Kiwi does has to do something with their money – probably invest it in NZ (of offshore and repatriate the profits).
If you didn’t have foreign investment into NZ, we would have a much smaller economy, and we would all be much poorer.
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photonz,
Wrong, wrong, wrong.
The expenses occurred in running a business (that includes ALL businesses including those having a rental property – either residential or commercial) are tax DEDUCTABLE against taxes PAID.
To claim a deduction first you have to be paying tax. (LACQ simply enable PAYE tax payers to claim expenses from owing a business (and not just rental property but any type of business) against the PAYE tax they pay.
Where is the profit margin?
Remember the interest paid is tax deductable, not the principal.
Some people just keep getting the wrong end of the stick, sigh…..
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Gerrit – I’ve got it completely right.
Because of tax loopholes, rental owners can DELIBERATELY make a loss so they can claim back tax.
The profit margin is on the (untaxed) capital gain.
So a worker with a rental property makes much MORE money in the long term than the same worker without a rental property.
But the worker without the rental property, despite earning LESS money, will pay MORE TAX.
So not only do rental powners save tax – they also get a untaxed profit from the capital gain.
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photonz1 said
> A lot of foreign investment is in companies like Contact Energy, or Telecom, who
> are not shipping goods overseas.
They don’t directly ship goods overseas. What happens is the company make profits, and pays dividends to foreigners in NZD. These NZ dollars may be swapped a few times – maybe ultimately being used to offet a New Zealand investment overseas. However, if the balance is in favour of foreign investments in New Zealand, those New Zealand dollars will be used to purchase New Zealand goods or services for export to other countries. Often the right to do this is not called upon immediately, creating a trade deficit – essentially a debt which will affect the whole country if economic conditions mean that New Zealand has to start ‘paying it back’ (i.e. exporting more and keeping less for the domestic market).
> Also you don’t factor in that if a foreigner buys shares (or anything) from a
> New Zealander, then the Kiwi does has to do something with their money –
> probably invest it in NZ (of offshore and repatriate the profits).
No, the way the sharemarket works is that the foreigner who buys shares gets the profits. It would be very rare that foreign investment would result in a net transfer of wealth to New Zealand in the long term.
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A1kmm – when I sell my shares in NZ companies (to a foreign buyer), I use the money for things like investing in my own business, buying other shares,or partaking in fundraisng offers where companies are looking to expand.
So foreign investment into NZ frees up large amounts existing NZ investment dollars to be used elsewhere.
You can’t count foreign investment as only negative, without putting the positive side of the ledger.
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Photonz
No, you claimed that
It is not possible to make a PROFIT from tax minimisation by owing a business that runs at a loss.
Now you are saying that the PROFIT comes from the capital gain. That part is right but the ability to make a profit from tax minimisation is totally false.
Some people buy a loss making business to offset their tax liabilites and to free up funds for further development of their own or the bought business. It is how jobs are retained or created.
They can in no way make a PROFIT from the transaction. Just retain a sum of funds for either returning to the shareholder or retaining in the business.
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Of course Rick Barker’s comments wouldn’t have anything to do with this, would they?
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Photonz
Do you mean:
– all of us, individual by individual?
or
– the median income (which is falling)
or
– the mean income (which is rising)
or
– (I’m being rude; one day I will stop succumbing to temptation) people like you
Brian Easton’s analysis in “Globalisation and the wealth of nations” is that, in the short run, integration redistributes wealth without changing the total or mean very much, but in the long run, it enables technological change which creates wealth. I’m not sure 1984 has created enough wealth yet for everyone to be back where they were before the change.
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“Seeing you are paying rates have you been silly and build a house on leased land?”
No we bought a house on lease hold land owned by a Maori incorporation. 10 years ago it made sense to buy a house that would cost less per week in mortgage payments than an equivalent rental.
The situation now is one of neighbourhood decay as sky rocketing lease and rates are making anything on leasehold land next to worthless.
This is driven solely by property investors driving the market well beyond where it realistically should be.
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So that is a yes to the silly.
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No sapient it would be silly if we had paid a lot of money for the house, we were young at the time and had limited options, buy a cheap house or pay rent. The payments on the house were far cheaper than rent at the time,and we were in a very good position until the property investors did their thing.
We are still in a better position than renting but it would have been nice to retain more options for our family.
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I would consider it silly to put ones self in a situation where one can easily be exploited. A smaller investment merely lowers the point at which one says ‘enough is enough’.
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Shunda
Was it the property investors fault (and what did they do?) or the Maori corporation lifting leases to present day market conditions?
Or are you being pushed out by the Maori corporate so that your property can be sold (not re-leased) at market rates for a far higher sum then you could get on the open market as a leased property?
In other words have they got you over a barrel?
More importantly what is your exit strategy?
Keep leasing or bite the bullet for an earlier mistake (buying a house on leased property) and move on (even into rental property).
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“Was it the property investors fault (and what did they do?) or the Maori corporation lifting leases to present day market conditions?”
One guy bought 7 houses in my street alone and then advocated strongly at each general valuation to raise values, I assume so he can borrow against these properties.
“More importantly what is your exit strategy?
Keep leasing or bite the bullet for an earlier mistake (buying a house on leased property) and move on (even into rental property). ”
Like I said it wasn’t a mistake, financially it still makes sense and is still the cheapest of all accommodation options. It was widely promoted at the time we purchased that the Maori incorporation would free hold in the near future. That was until some greedy investor artificially drove up the market.
Are you one of these greedy parasites Gerrit?
And Sapient, don’t talk to me about being wilfully exploited, you’re a student!!! are you silly?
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Shunda,
How do you define investor?
Someone whom is investing in properties for retirement, or for upgrade and latter sale, does not raise prices ‘artificially’. Only speculators raise prices ‘artificially’. The raising of prices may be negative for you but it is a perfectly natural part of the housing and property market. There is no reason this investor should not own seven properties in your street, and by the sounds of it the investor did not raise the prices so much as bring forward an increase that would have happened at re-valuation anyhow.
As to my exploitation? How? The university pays me about the same as I pay them. I gain skills that lead me to a rather well paid job that I will enjoy. I enjoy the jobs I do presently as a result of the training received. My qualifications are recognised world wide. I will soon be published with only a bachelors degree. I have access to a vast sea of knowledge. The only area for exploitation is my student loan and that is only exploitation if the government hold me to ransom and vastly increases the interest above the normal levels. Unless that happens it is me doing the exploitation due to the interest right-off. If it did increase interest rates I could still pay it off with minimal inconvenience.
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We make choices depending on the circumstances we are in, my choice was no less logical or “silly” than any body else that weighs up the facts and then makes the correct decision. My desire is to see the benefits of my choice remain instead of being eroded by a grossly over inflated property market.
My reference to you being a student was more about the “poor student” situation that often arises while people pursue an education, I didn’t realise you are one of the lucky ones.
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Shunda,
If you mean I own a company that has as its primary asset a rental property, and would be on the lookout to purchase leasehold property going for a cheap price and taking a freehold title, then YES.
Parasite? Nah opportunist. Just like you could have been.
You may have a case against the leaseholder if they are selling based on “insider knowledge” that the Maori corporate was going to freehold the properties.
How could an “investor” increase the value of the properties? Does he have an insider at QV?
He could only increase the value of the properties if he onsold them, in which case the buyer sets the valuation.
Was he buying leasehold, getting the Maori corporate to freehold them and then selling them as freehold properties?
Sounds like, without a first refusal in your lease to purchase the property, you are stuck.
But that is not because of a “parasite” investor. You too could have taken advantage of the situation by negotitaing to buy, instead you are crying foul.
mmmmmmmmmmmmmmm Where is your street? Might be worth a visit. I sense opportunities.
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Shunda,
I have lived as a poor student and next semester I will again be living as a poor student. That I work as a researcher in the holidays and a tutor and marker in the semesters (though I have opted to forgo those this coming semester so I may focus on my papers. I will thus be living as a poor student again) is not luck but effort and ability. I could be considered one of the unlucky ones in that I have never been eligible for a student allowance or accommodation costs and receive no support from others.
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Gerrit, the properties the speculator purchased were already freehold, the leasehold sections are scattered over a wide area, not good investments it would seem.
“Sounds like, without a first refusal in your lease to purchase the property, you are stuck.”
I have that right, the problem is getting them to sell!!!
“mmmmmmmmmmmmmmm Where is your street? Might be worth a visit. I sense opportunities. ”
Opportunity has passed I am afraid, as the rentals are at the lower end, the tone of the street is dropping like a stone, so hey, maybe all I have to do is wait
Our exit strategy seriously involves a big truck with a big crane, they can have the land back.
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Gerrit – if you want to per pedantic, then you are correct – property invertors do not make an actual “profit” from their tax saving. But they are certainly “profiting” from paying less tax.
If you have two people on the same salary, each paying $15,000 per year in tax on a salary of $87,000.
Both are paying $22,500 per year interest on their mortgages. One is for his own house. The other is the top up amount needed to cover the interest shortfall, over and above what is covered by rental income.
The rental property owner can claim the interest ($22,500) on his tax, which at 33% reduces his tax bill by half ($15,000 -$7500 + $7500).
So a rental owner on a salary of $87,000, can pay the tax of someone on just $41,000, but with capital gains is actually earning a total $100,000 – $200,000+ per year.
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photonz
Your comparison beween the taxes paid by the two parties leaves out one very big consideration.
One tax payer is taking a risk by investing their savings for their own and their childrens future.
This investment may be a second property, an existing business, starting a new business,etc.
You saying that that investor should not get tax deductions for the expenses in doing so?
I say good on the person who gets off the salary/wages trap and invests into their own future.
Scary but oh so rewarding.
Another point you overlook. If that investor sell a property he will be adjudge taxes on the profit. (we already have a capital gains tax!!!)
If that investor “makes” $200K per year he will be paying $78K in taxes. Sure he can claim expenses as tax duductions but he still pays taxes.
Perhaps you would be more interested in how claiming GST back on a property purchase BEFORE resale (GST being used to fund property development) works.
That is much more fun then worrying about tax payments.
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Ideally there would be/should have been a CGT on rental property – so all investors paid a tax on the CG, not just those running a property business. However the chance of future rising values is not high now and there is little tax to be raised this way (no reason not to introduce a CGT though, but there is little tax gain in the near term from doing so and thus it’s not really a priority).
What is likely is ring fencing losses on property. What is also likely, by all acccounts, is reducing depreciation that can be claimed (which will impact on comercial property) unless there is evidence of an actual decline in building value. IMO, this change to depreciation policy on property should be mitigated by allowing an increased allowance for repairs and maitenance – to maintain housing/building standards (possibly including energy efficiency upgrades within this area).
The economic problem is the amount of money borrowed offshore to bid up the price of local land that housing is built on – the RB has changed criteria for banks (they now have to hold more of their funding onshore). Neither the equity tax, nor a land tax really deal with that economic problem – and in fact the equity tax could make it worse (as it penalises invested equity, not the resort to the borrowed mortgage), and the land tax is simply a tax grab off poor to middle income property owners for no other purpose than to finance tax cuts to those on higher incomes. That’s just risible.
The RB has made an important first move, ring fencing property losses is the obvious second, the proposed tax changes for depreciation on buildings the third but with tax gains mitigated to maintain building standard. Approval, in principle, for a future CGT (for all rental property owners) should be the other – the risk here however is of speculation transferring to “holiday” homes. Further moves could be left to a group tasked with looking at a new regime for when CGT (for all rental property investors) are finally introduced.
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Gerrit – the problem is over-investment in residential property is a scurge on the country.
It reduces taxes.
It takes money from the productive sector, and puts it into something that produces absolutely nothing.
It means the whole country is paying far more in mortgages and rent than what their properties are worth – money loaned from overseas banks.
As for your claim that there’s already capital gains tax – pull the other one. Unless you seen to be specifically buying for capital gain (i.e. buying and selling quickly, selling several houses in one year, or developing property specifically for a capital gain) then IRD does not tax residential investors for capital gain – and certainly not over the ten year example I gave.
It’s good that people save and invest, especially if they do it with their own money, rather than off tax savings that everyone else has to make up for.
And like any other business, they should be able to claim expenses and be taxed on profits. Unfortunately with residential investors, they claim on expenses, then pay no tax at all on their profit.
It should be an illegal scam, but it’s currently legal – hopefully for not much longer.
It’s absolutely rediculous that you can have a situation where someone is earning over $100,000 per year and paying the less tax than soneone on $45,000.
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photonz,
If people are buying those properties then the money they are paying sets the value of what the property is worth. Not you, not QV, not a Green notion of what the property value should be, the buyers fronting up with the readies sets the price – the marker decides).
Add the consideration of how much a new property takes to build. They sell for (even in the deep dark depths here in South Auckland) for $400K.
Unless you can reduce the cost to build a new house, secondhand house prices will not drop by any great degree.
Absolutely, but would you trust the wild west market that is the NZX? Would you trust the likes of Eric Watson with your money? Would you start a business where you have to pay provisional tax prior to recieving actual income(not to mention employing staff)?
Where would you have invested your money? What productive enterprise would you have invested your personal nestegg in?
You get no complaints from me to restructuring the tax system where each pays their fair share.
Problem is that you wont be able to ring fence residential property from the business model of taxation.
Sure you will get the PAYE payer, that is easy. You wont be able to ring fence EASILY those who have their residential property as part of a business owners portfolio.
Would you include commercial property in your residential mix where the tenants lives on the commercial property (farms are an example, as are many units in industrial estates).
Manukau City Council allows many small industries to be set up in the residential houses. Would these units qualify as residential units or commercial?
I run my office from home, is this then a commecial property (I claim 15% on all my house expenses – except food – for my use of the residential property as a commercial entity)?
So many loopholes, so much opportunity.
I hope the government closes the far greater loophole of being able to claim GST back on a project before it is even sold.
Say I buy a bit of land for $1M. I plan to develop and resell for $10M. I can claim the GST content I would theoretically pass onto the government from the purchasers ($125K) from the get go. (ever wonder why property developments have such a high sales figure?
Then I simply go bankrupt on the first property, and my partner start another.
After a few of these one simply move to Fiji (or buy a loss making horse stud or similar to “repay” the GST owning from non existing profits in the loss making company) and live the life of riley.
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<Gerrit says "Absolutely, but would you trust the wild west market that is the NZX?"
Yes. And have had some increases over 100% in the last 9 months.
<"Would you trust the likes of Eric Watson with your money?"
No
<"Would you start a business where you have to pay provisional tax prior to recieving actual income(not to mention employing staff)?"
Yes. That's my main income.
The main reason new houses cost $400,000 is because they have two bathrooms, ensuite, double garage, stone bench tops, etc.
When was the last time someone built a basic two or three bedroom house?
There's a lot of loopholes in the system. And the country as a whole would be better off if we didn't have such a strong focus on putting all out money into a sector that produces absolutely nothing – residential housing.
We go backwards in productivity and have one person in each couple working nearly full time to give moeny to a foreign bank.
To fix it, property investors need to be taxed properly on the money they make. Because the money they make is mainly from a capital gain, many currently not only pay NO tax on their property business – they pay LESS than they would if they had no property business at all – that's just wrong.
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Gerrit asks <"Absolutely, but would you trust the wild west market that is the NZX?"
Yes, I do. 100%+ increase in some stocks in the last nine months is pretty good.
<"Would you trust the likes of Eric Watson with your money?"
No.
<" Would you start a business where you have to pay provisional tax prior to recieving actual income(not to mention employing staff)?"
Yes – have done.
<"Where would you have invested your money? What productive enterprise would you have invested your personal nestegg in? "
My own business, shares, including some commercial property shares, and a small number of bonds.
Having half our earnings going into a sector that is completely unproductive – residential housing – is a massive waste of effort.
If houses were cheaper, and we focused our efforts/ earnings /savings on productive sectors (both investors and those paying their own mortgages / rents), the whole country would be better off.
Residential property need to be taxed more fairly, or even harshly, so that house prices are kept as low as possible, and people pay tax according to the money they make.
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GREEN MP’S SHOULD SCRAP GST ALLTOGETHER
In the second comment I think that Shunda hits the nail on the head ‘tax the bas#ards’. When one developer in an area monopolises the land available there is a huge distortion of the value of that land as it is grossly inflated.
If a capital gains tax was to finance a state rent to own housing scheme then money will be flowing in at the lower end and housing would be affordable to working Kiwi’s. It’s not new Joseph Savage did it, and so did Harold Wilson did it in the UK.
Also do land developers/investors/ speculators pay GST? not likely any expense that is incurred is rebated. Can employees claim their expences on their bus tickets to work? Sorry boy you are on Paye As You Earn!!!
GST is a flat tax and it is so unfair.
Mr. Key has broken his election promise about reducing tax and intends to increase GST, this is absolutely immoral.
Green MP’s should counter this move by scraping GST alltogether!!!
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Drakula, GST isn’t as regressive as a lot of people (including you, presumably) think. The reason is that people on low incomes spend a disproportionately large amount on financial services and/or residential rents, neither of which attract GST.
That said, raising GST to offset a reduction in the top rate of personal income tax, as suggested by the tax Working Group and apparently being contemplated by the Government, would be a highly regressive move.
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That’s like saying a 100% gain in penny stocks (which these are) or junk bonds is some sort of indicator of lack of risk?
The NZSX has a liquidity problem. It is also small, as are New Zealand companies. It’s a risky environment.
Yeah right. Adding a cost will mean the price falls. Tui, anyone?
You might want to focus more on the supply side.
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BluePeter – Call them what you like. A number of good companies have increased by 100% or more in the last 9-12 mths.
They are good well established companies, Pumpkin Patch 105%, THL (Maui Campervans), Restaurant Brands (i.e. KFC) 174%, etc.
The main reason they have increased so far is people freaked out last year – and like you – wrongly thought they were junk.
Residential Housing – it’s rediculous that you can earn large sums of money from rentals, and never pay a cent of tax.
Adding a cost means the price falls – yes. The house prices fall. If the huge tax loophole is closed and you can no longer make a large tax free profit on rentals, then they are no longer a viable option for many people.
And yes, I agree. The supply side would help a lot as well. We need to build more resonably priced houses instead of 4 bedroom, 3 bathroom, 2 garage luxury houses in top areas.
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>>A number of good companies have increased by 100% or more in the last 9-12 mths.
So what? That says nothing about the relative risk of the NZSX vs other sharemarkets.
>>They are good well established companies, Pumpkin Patch 105%, THL (Maui Campervans), Restaurant Brands (i.e. KFC) 174%, etc.
I think you need to look at their market capitalisation to see just how small those companies are. The smaller they are, and the less liquid the market, the higher the risk.
>>The main reason they have increased so far is people freaked out last year – and like you – wrongly thought they were junk.
I’m not saying they are junk. I am saying they are small companies in a small market that has poor liquidity compared to many other markets and companies worldwide one could invest in. It appears you don’t understand how to evaluate risk, else you’d acknowledge this self-evident fact.
>> then they are no longer a viable option for many people.
Then the supply side of the rental market dries up.
So what happens next, hmmmm?
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A few things here.
First: We don’t “blame” property investors for reacting to opportunities thrown at them by the tax system and incentives provided by the investment environment. Maybe some of us do, I don’t. However, people who take advantage of such an inequitable setup have no beef when the inequity is finally corrected. They may feel hard done by, but they’ve had their ride. I think you understand it pretty well.
Second: Yes, I could have bought a house and become a landlord. There were a lot of factors saying “do it”… but it is a wholesale waste of my abilities and it is absolutely fncking stupid for the system to make that the best way to provide for retirement, income or tax shelter. I am not a landlord, I am an engineer. I am not a landlord, but I do want a place to live that I can improve without losing the value of all that work when I move. Yes I could have. So could a lot of people who prefer to work at what we are good at and prefer at some level NOT to “take advantage” of other people, which is what the tax incentives actually accomplished.
If people are buying those properties then the money they are paying sets the value of what the property is worth.
As long as people buying those properties to rent them out can deduct the interest costs while I, who would buy to live in it cannot, they do not have much incentive to CARE what the property costs as long as the bank is willing to finance it. I have to care.
With the mortgages structured properly the taxpayer is on the hook for the bulk of the damned house price… not the property investor, and if the mortgage had to be paid out of straight income the way the rest of us must do it, the house CAN NOT be sold at that price. The money doesn’t exist.
The problem here is the cost of the money, as well as the cost of the house. I have to pay a premium for that mortgage. The property investor pays bupkis, the taxpayer (that’s ME again) pays for his interest. Roll the properties back and forth, raising the prices all the time and the property investment market forces the whole range upwards, with no increase in actual VALUE. Worse, this increase in the money supply (all borrowing creates money) is inflationary in a fractional reserve banking system and it puts more power in the hands of the bankers. In Oz.
You claim the cost of building the house is the problem? Only partially. I can have 4 bedrooms and 2 baths done for 320K instead of the half-million which is the price point for every fncking new house built in this area. All it takes is a bit of effort on my part, and a cooperative bank.
…and I am waiting for the government to drop the hammer on whatever it is going to do, as the market WILL shift – dead certain that if I commit before they do it it will shift a lot, and to my certain loss as Murphy is my god and my witness
… but come what may I am going to go forward with this as well as I can.
Personally, rather than the ring-fencing I would propose that I be allowed to deduct mortgage interest in much the same manner as the property investor. That makes the playing field a lot more level without incurring the difficult task of ring-fencing the investments.
This is not an unusual notion, but it would cost the government a HEAP of income tax which would have to be made up in some other ways.
I suggest that even so those “other ways” are preferable to the mess we have now.
respectfully
BJ
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BluePeter – using your risk asessment, I would never put money into my own company, as it’s about .00001% of the size of many listed NZ companies. No one would invest in anything escept very large companies – none of which are in NZ.
You MAY lower risk by buying only larger companies, IF you pick the right ones. There’s plenty of big companies that have not done very well – in fact it’s arguable that smaller companies have been able to move faster to adjuust to the worldwide recession. So in many cases there is LESS risk in smaller companies.(Air NZ is a good example when compared to larger airlines).
However smaller companies have a much higher growth rate, and you can reduce risk by spreading your investment among a large number of smaller companies.
Some people see volatility as a risk, but it is also a big opportunity. You can pick up good companies at absolute bargain prices, and for investors like myself, what the share price is now or in two years is inconsequential (except for buying). What’s important is what the share price is in 15 years time.
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The only tax which can ever be certain is a people tax or poll tax.
If you breathe you pay. Japan has it.
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“The only tax which can ever be certain is a people tax or poll tax.”
Be still my beating heart!
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No, I’m saying if the investor has a choice of markets, and they are risk adverse, they are hardly going to invest in the NSX. Let’s not even get started on currency risk.
Your small business IS risky. As is mine. I’m happy with that risk, but I’m not sure the average ma and pa property investor will be. Investment property is a relatively safe and conservative investment class. So to assume such capital will magicly cross over to a high risk investment calss, if you make property less desirable, is nonsense.
It will go into bonds.
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genji, big bro – poll tax worked a treat in the UK, didn’t it?
Fancy a job as poll tax collector in Mangere or Wainuiomata?
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In the same local market? In the same currency?
That’s spreading the risk a little, but not much.
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>>Fancy a job as poll tax collector in Mangere or Wainuiomata?
They call in council tax.
And yeah, you’ll find yourself in jail if you don’t pay it.
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Toad
You really show your ignorance, “poll tax” or to give it its modern name “council tax” is alive and well, I know, I paid it for seven years when I lived in the UK.
It works fantastically well, nobody can get a free ride and everybody pays their share.
Interesting that you think violence is a good reason not to collect taxes Toad, or are you being racist in suggesting that the people of Wainui or Mangere are not capable of speaking out without using their fists?
Either way Toad it is not a good look, you are either a racist or one of the so called “intellectual liberal elite”
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Actually, bro, I picked those suburbs because they have a high dog population.
The Council tax you paid in the UK is not a poll tax. It is not a flat rate tax but is based on property values – very similar to the rates we pay here.
And I’m not advocating violence bro – just pointing out that was what happened in response to Thatcher’s poll tax because of its extreme unpopularity.
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BluePeter says “the same local market? In the same currency?”
No – that’s just one area of investment. Though you can do the same thing for Australia with a single investment that covers the 51st to 100th largest companies.
We have nearly half our investments offshore, though the theory of lower risks for larger overseas companies, itself carries with it some higher risks.
Like it can be more difficult to find information and analysis, and in NZ we’re often much slower to pick up on any significant changes to (positive or negative) not only because they are less likely to be reported, but also because the time difference. We can wake up and find we’ve missed out on something we should have urgently bought (or sold).
In NZ we have a much better handle on news in our own economy that will impact on various industries / companies.
So while soem risks are larger with smaller companies and smaller markets, other risks are reduced (smaller is more nimble in changing conditions, and more local knowledge about companies and market conditions)
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BJ,
I’m both an engineer and a landlord and I’m good at both. So why not?
The argument that the IRD is somehow able to ring fence residential property will be interesting. Pointed out a few anomolies that could be used (shared commercial/residential for example – could lead to more people living in commercial property).
Property prices will continue to rise simply because we are importing another 45,000 people this year and every year for the foreseeable future. They need somewhere to live.
I think interest payments as tax deductable for everyone is a good idea. Mind you that is what the LAQC was set up to do!
Problem will be once you have paid of a portion of your morgage you can refinance (to buy a bigger boat, rental property, overseas trip, etc.) and still keep claiming interest payments as tax deductable.
I’m sure you could build a house for $320K however how much time and effort are you willing to put into building it (full time for a year?). What you then look at is how that cost is in lost wages, increase in grey hair counts, stress levels into stratosphere, etc.
Not to mention the up front cost for planning approval or the certification that it is built to spec, etc.
One question to address is not the tax take but tax expenditure. Cut expenditure (we are still borrowing $50M per week) and live within our means.
At current borrowing we will not see New Zealand without borrowing till 2016 on current forecasts. And our children will need till 2030 to pay back the borrowings PLUS interest.
Food for thought. Those 45,000 imports better bring some productivity with them!!!
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Toad
Lol….I have never seen you back peddle as fast as that Toad, and to be honest, the “dog” excuse is not fooling anybody.
You picked those suburbs because they have a high percentage of “brown” people.
Just admit that you made an mistake and move on, you made a racist statement, deal with it, I am sure in time your fellow Greens will forgive you.
Council tax is paid by everybody, it does not matter if you are a tenant or you own the property, nobody is exempt.
The sooner we introduce it here the better.
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photonz1
The point I’m getting at is the ludicrous argument that if you punish residential property, that investment will flow into the New Zealand sharemarket and New Zealand businesses.
Most of it won’t, because that’s an asset class that has a significantly different risk profile.
Investment properties in New Zealand are “safe”, conservative retirement savings that require little in the way financial know-how. I wager that most capital that is released heads into bonds, and gets diversified offshore.
In other words, it will stay in investment classes that are conservative, low-maintainence safe havens.
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Ma and pa aren’t going to do that – they’re not interested in crunching numbers and making investment calls every day. After ten years, I couldn’t even be bothered with share trading, and handed it to a broker. A very well known broker who’s opinion on the NSX is similar to mine.
Actually, he described it as “f**ked” and won’t touch it with a bargepole.
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BluePeter – You’re trusting your money to someone who thinks there’s no good companies in NZ worth investing in?
You say money won’t flow into the NZ sharemarket and businesses.Your wrong – quite a bit will. My family have a number of rental properties, and they’re looking at the sharemarket.
Others are looking at conservative shares like commericial property companies, which have a LOT LESS RISK than a residential property investment i.e.
- with 100+ properties, much lower risk of not having a tennant for a while.
- much lower risk of a bad tennant who damages your property or doesn’t pay.
- you need a new car on Monday, you can sell a little and get paid Tuesday. You are not tied to it for years.
- you have a little bit of extra cash, you can buy a little bit more.
- someone else manages the tennants and regular rent reviews.
All you have to do is bank the (tax paid) dividends.
It’s just like owning a residential property, buy with many benefits, and much lower risks.
Or as you say, some will head into bonds, much of which is used for NZ companies to expand.
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Actually, he described it as “f**ked” and won’t touch it with a bargepole.
Are there any written opinions on the NZX along those lines out there?
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frog! I seem to be getting a lot of moderation for someone so epically non-trollsome.
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Stephen, create an account and log in. All non-logged in people’s posts are moderated.
There is a message about this shown above the ‘leave a reply’ form which you have used several times
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photonz1: bwahahha, commercial property. Do you know how much empty commercial property there is in Auckland at the moment?
I wouldn’t touch it with any kind of pole
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Make interest payments tax deductible for everyone? Heck, why not make all expenditure tax deductible! We wont collect any tax but at least all individuals will be treated as if companies!
Making interest payments tax deductible is nothing but a massive subsidy toward housing. Individuals are treated differently to companies mostly because the cost of operation when an individual is working is little different than the cost when an individual is not working. Since that cost would have to be paid regardless it can not really be considered an expense incurred to make a profit so much as s cost incurred to live and as such has no place being tax exempt.
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rimu says “photonz1: bwahahha, commercial property. Do you know how much empty commercial property there is in Auckland at the moment?”
Yet the listed commercial property companies pick top locations, which leads them to having over 95% of properties currently tennanted, with average leases of 5-9 years, and regular rent increases in the contract.
They have an average return of 8-10% AFTER tax, in addition to property values, (therefore dividends) effectively being inflation proofed.
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rimu – your link is to one sector only – offices. There’s also industrial, retail, and medical available to invest in, and even car parks. Many companies have a spread across sectors.
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Fog! There’s something wrong with my ‘r’ key!
(Just finished work – had pent-up energy!)
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Oops, that should be on this thread. Threadjack unintended.
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Again, you miss my point. There will be many companies worth investing in in New Zealand, including my own, but the RISK profile of those companies is different than most ma and pa property investors seek.
Commercial property IS riskier. It is not in the same class.
Your average ma and pa investor – who is NOT your Olly-flicking-property-portfolio-collecting-trader – is looking for a safe haven for their retirement savings.
That’s whom most investment property in New Zealand is owned by, and that is the reason they do so.
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Hidden due to low comment rating. Click here to see.
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Fly
“(Just finished work – had pent-up energy!)”
Are you struggling to implement the new national standards?
I guess you ARE one of the 30%
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>>Are there any written opinions on the NZX along those lines out there?
Maybe.
His analysis is based on a number of factors, including liquidity issues, the risk profile of small markets and small companies within them, Cullen’s tax “initiatives” as to how a trader is defined here, etc.
He wasn’t saying one shouldn’t invest in New Zealand, but he wasn’t happy with it as a whole in terms of downside risk, and chooses to invest offshore.
He’s very well known here. I’ll leave you to guess.
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Thanks. Looks like i’ll need to do my OWN research! Savings have reached a point where i’m looking at what else is out there, crap interest rates and all.
He’s very well known here. I’ll leave you to guess.
Um. Will you accept a ‘20 questions’ format? 1) Has he been in movies? 2) Does he have a penchant for cravats?
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Some may say he’s a regular biker bloke.
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Penchant for ‘taches then.
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You might say that, but I couldn’t possibly comment
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Key takes middle road in whacking residential investors
By Pattrick Smellie
Feb. 9 (BusinessWire) – There will be no land tax and no tax on imputed rental property income, Prime Minister John Key announced in his scene-setting speech kicking off the parliamentary year, this afternoon.
While Key spoke more about what taxes wouldn’t be applied than those that would, it appears removal of depreciation on buildings and ring-fencing of losses from residential rental property investments are still on the cards.
“We will … be making changes to the way property is taxed, which will result in increased government revenue and more fairness for taxpayers. These changes will be announced in the Budget.”
Removing depreciation allowances would advance the Crown’s revenue flows by about $1.3 billion a year, last month’s Tax Working Group report estimated.
An increase in GST from the current 12.5% rate to “no more than 15%” is also under consideration for announcement in the May 20 Budget, but only if accompanied by personal tax cuts and welfare benefit adjustments that make such an increase fair to low income earners.
While the government will make no changes to the Working for Families income top-up scheme for low to middle income families, Key is signalling a crackdown on high income earners exploiting company, trust and other tax minimisation structures to qualify for WfF entitlements.
Responding specifically to the TWG’s proposals, Key said “we will not be developing any proposals for a land tax, a comprehensive capital gains tax, or a risk-free return method (RFRM) for tax residential investment properties”.
While a land tax was attractive to economists, it was “effectively a lump-sum tax on people who own land at the time the tax is introduced, would only fall on people who hold their wealth in one particular form, and would create cashflow problems for many landowners, especially those on lower incomes”.
“An RFRM is another tax that, while having some conceptual appeal, would also create cashflow problems for taxpayers,” Key said. “A property owner could have a very sizeable tax bill each year under an RFRM, but little or no ability to pay it, except by putting up rents. These new taxes are therefore off the table.”
With respect to GST, Key said “the government would not embark on a policy of increasing GST unless it would benefit the New Zealand economy in the long term and unless it saw the vast bulk of New Zealanders better off”.
On Working for Families, Key said tinkering with the system would “run counter to the government’s desire to reduce people’s effective marginal tax rates”, which can rise well above statutory rates if WfF recipients increase their paid incomes.
“Our main concern with WfF is the possibility that people can earn a lot of income, but do so in a way that means they are still eligible for WfF payments.
“That is contrary to the intent of the policy, which is aimed at supporting genuine low to middle income earners. The government is looking at how to make WfF fairer in this regard.”
The TWG identified a sharp drop in the number of people declaring themselves millionaires in their tax returns after WfF came into force, and a suspicious clustering thereafter of incomes around the $60,000 a year mark, where WfF entitlements are available.
“Most of the options discussed in the Tax Working Group still remain on the table,” Key said.
In a wide-ranging speech, which he was unable to read in full in Parliament owing to time restrictions, Key earmarked science and innovation policy as one of the few areas that could expect new significant funding in the Budget, ” with a focus on boosting business research and science capability”.
He also announced the intention to create a new Conservation Fund, which would take a portion of the royalties earned from mining on conservation lands to fund “special conservation projects” so that an increase in mining would lead automatically to an increase in conservation funding.
Key also foreshadowed the release in the next few days of the government’s response to the Capital Markets Development Taskforce, with many of the issues raised covered by the review of the Securities Act, already under way
http://business.scoop.co.nz/2010/02/09/key-takes-middle-road-whacking- home-investors/
Much as I guessed in my earlier post – just depreciation changes and ring fencing look likely this year.
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Russ is speaking, if you listen really hard you can hear the Greens dropping like a stone in the polls.
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I don’t use the ‘r’ word, Toad. Too much respect for my farming brethren.
Besides, if it’s the colour of a cooked lobster, they’ve melanoma to struggle with in the years ahead. It’s not for me to add to their misery. Plus I feel for them, what with the music they listen to ‘n’all!
Bro – I’m not struggling to ‘implement national standards’.
Tolley is.
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Holidays on the coast. Heart of stone.
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Fly
Get used to it, those good old National Standards are here to stay.
72% of us want them!
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BluePeter – you can say commercial property is riskier, but actual evidence would say the opposite.
I was behind a guy in a police station recently, and he was pleading for the police to remove the tennants in his rental, because they were deliberately wrecking the place.
The police didn’t want to know, and advisded him to advance throught the court process.
My brother in law has a few domestic rentals, and has problems with tennants every year. He prefers less risky commercial properties where he’s never had problems with tennants damaging anything, or getting behind in rent.
Residential property is not the low risk investment you claim.
Can you get a residential property where you have 5 – 9 year leases. Can you invest low amounts like $10,000, and have the reliability of over 100 tennants, with an occupancy rate of over 98%, and profesional management?
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Bro – Key’s speech was a pale, wan sort of nothingness.
His ideas, and those of his Party are the same.
National Standards are one of the dishwater weakest of them all.
I laugh in the pimply face of such feebleness.
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No capital gains tax, not even a land tax, no risk free return method for taxing residential investment properties. Yep, just close the loopholes that allow the grossest rip-offs through offsetting losses on rented properties against tax on other earnings, and bugger all else.
But increase GST to offset the reduction in the top income tax rate.
It is largely a transfer of the tax burden from the wealthy to those on low and middle incomes.
Bad look, John Key.
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taod says “It is largely a transfer of the tax burden from the wealthy to those on low and middle incomes.”
Quite the contrary.
OAlthough there’s one problem – it’s hard to offset tax for lower incomes when 40% of people don’t pay any tax.(or get it all refunded in WFF)
What percentage of the population do you think should make a ZERO contribution to their healthcare, education, policing etc?
Raising GST is a good move, as it will tax those that spend a lot, much more than those who don’t.
Beneficiaries, pensioners etc, will have increases to cover the 2.5% gst increase.
And people who save rather than spend will also get a benefit.
Pretty good all round – the main losers are big spenders and tourists.
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Sapient, there are exactly 3 methods of making the playing field even between me and the property investor type. I can have the same tax deduction for the mortgage interest on the property as he does, or he CAN’T have that tax deduction, or you can mess around with a whole lot of complicated tax rules that make it look like you’ve done a bit of both.
It is a lot easier to manage the deductions applied to the cash-out refi than it is to cope with the myriad of ways a business entity can be substituted for a person for tax purposes.
Sapient: It is not true that a house is solely a place for living, there are a lot of aspects to owning a home and the fact that it IS a relatively inflation proof investment as well as a place to live has to be addressed in any logical analysis of it. People put a LOT of money and effort into owning homes.
Yes it IS a subsidy. One that is applied to business entities. Not available to individuals. So the individuals who want to concentrate on their strengths instead of futzing around other people’s money lose out.
However, the notion that the building of houses will suddenly stop because people are able to buy their own homes instead of renting from someone else, ignores a reality. People like me who want to buy but are currently shut out, are an underserved market. WE can’t pay for a McMansion, don’t want one, don’t need one. We are quite capable of doing “stuff” but there is not and have not been, any builders putting anything together for us.
Just the kit houses.
Part of the reason for this is that buildable land IS scarce and so the developers are trying to maximize profits on each scrap of land. So the upper end of the spectrum is overserved. The houses occupying half or more of a section is symptomatic of land scarcity. This is a point that Greens should not overlook and I think we tend to. Gerrit – We can’t all be landlords. We can’t all be farmers with big veggie patches either, but we all need a place to live.
Gerrit, if I use one of the kit build mobs to run the construction of the lock-up shell, I save a lot of the headaches and gray hair inducing problems. I didn’t guess at the numbers, I am actively in the market to do this and getting more active as the tax changes get closer to being actually fixed in place. I want to have my powder dry at the schwerpunkt because whatever they do now is going to be all I really expect them to do between now and 2013… and it is time I got myself dug in. My point was simply that the market is flooded at the top end and extremely sparsely served for the entry level owner-occupant. That’s a serious distortion, as there are stuff all individuals who can afford the hit. I would venture that as many as 3/4 of the houses in that new development are being rented to other people, and that the losses are being charged to the taxpayers of New Zealand, who are subsidizing the owners, who are sending the cash to Ozian banksters.
One thing about interest deductibility is that mortgage interest is practically all of the mortgage payment early on in the life of a loan, and mortgage principle (which is NOT deductible) is what you pay later on.
Makes it a lot easier to get in.
Now I don’t know that I am completely right here, but I am pretty sure that Key and English are comprehensively and reprehensibly wrong.
BJ
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BJ,
Kit housing is a good idea. Interestingly enough New Zealands first kit house was the treaty house at Waitangi. Was bought in from Sydney. You can still see the part numbering system and the fastening used to build the place. Facinating restoration job done on the house and most interesting concept of kit housing.
.
All we require is a simple two stage taxation system. Any money repatriated overseas is taxed at say 60%. If retained in New Zealand at say 10%.
Watch new Zealand get ahead then. The banks will either pull out (no great loss) or contribute to getting New Zealand productive again with decent loans for housing, business, etc.
I would imagine that buying a bare section in a reasonable area will be near as expensive as any kit house you could put on it. If you could find one that is.
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I know what you’re saying, however commercial property is problematic for ma and pa investors because it requires a higher level of understanding, and the barrier to entry for quality properties can be significantly above the resources of the individual. I’m in a syndicate and we own a well-known mall – but that takes millions and dedicated investment management. I don’t know anything about small commercial holdings.
I’m not saying residential is without risk – there is risk in everything – however it is relatively low risk and conservative. At very least, that is the perception, which isn’t going to change in a hurry.
I think you’ll find people are still off shares due to what happened in the 1980s!
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photonz1 said: Raising GST is a good move, as it will tax those that spend a lot, much more than those who don’t.
Problem is that most of those who spend the bulk of what they earn are people on low incomes. Those who invest are people who have something to spare.
If you don’t have something to spare, you get hit by the GST increase.
I would have preferred a comprehensive capital gains tax – a realised one upon a property sale.
Raise the revenue from the real bludgers – not from those struggling to get by.
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BJ,
I prefer that he does not have that deduction in the first place. I had thought my position had been previously established.
My point was not that houses are used only for living but that the costs incurred in producing labour are, almost entirely, incurred should that labour be produced or go to waste. In this way the profiteering of the labour is distinct from the profiteering of companies.
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Well as I actually support the idea of ring fencing property losses and can see some reason to cut back on the depreciation allowed (where the property is not falling in value) I am not upset over signalled changes.
But I think some of the money saved by cutting back on depreciation should transfer to repairs and maitenance (including energy efficieny investment) – to ensure our housing stock is not run down as we reduce income flow to landlords.
I also think the government could look at either a capital gains tax or some “tariff” alternative when the property is sold (excluding those of rental property business currently paying tax on the buying and selling profits) – a commercial transaction tariff (say a 10% duty) only payable (by those not paying any tax on their buying and selling profit) when the property was on sold to another landlord (the duty would be null and void if a buyer was making the property their primary home residence). That would both raise revenue from those avoiding tax on their realised gain, and also encourage purchase by home buyers. The duty money raised could help fund either the accommodation supplement or public housing investment.
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toad and SPC,
No good because most rental properties you are so against will actually never come on the market.
They are either owned by a family trust and passed down the generations or owned by companies where the company is sold, not the asset.
So bring in a CGT, it makes no odds to most investors, the “properties” are never sold in their own right.
Then you have investors who might sell their “properties” to kin folk for a token gold coin.
Implementation of a CGT is so cumbersome and so unpredictable in cashflow generation (totally dependent on property turnover) that it is not going to do anything to reduce property investment.
next you want death duties. Again a family trust negates that avenue.
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Will anyone address the other side of the economic equation. Cut expenditure to reduce the need to raise taxes.
I’m suprised the Greens are slow on that uptake in the speech today that expenditure is basically tapped at todays rate.
No payrises for state sector workers.
Good, lets see them ALL in productive tax paying jobs.
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BluePeter – if you want to invest in commercial property, you can can buy some in the countries largest property companies tomorrow morning, even if you are Ma and PA investor.
The only understanding it takes is that you will recieve a dividend of 8-10% (AFTER tax), you have over 100 tennants with long legally binding leases, and your properties are high quality in top locations, and run by experienced managers.
If you change your mind next week, and want to buy a little bit more, you can, or you can sell, or just sell part, and you will get a cheque the very next day. Try doing that with a residential property.
And rather than being fleeced by a real estate agent, you’ll probably only pay around 1% to buy or sell.
You don’t need to know as much or be as worldly-wise as if you’re buying yourself a residential rental property.
That breaks the first rule of investing – never put over 10% of your money into any one investment
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Gerrit
1. Many companies actually pay tax on their residential property business profits and are unaffected by CGT being applied to others. Their CGT does not prevent them on-selling properfties rather than building up a landlord portfolio – the tax rate is only 30% after all.
2. Yes some landlords will try and bluff – that they would act to avoid paying a CGT, thus there would be a minimal tax gain – to deter an introduction.
The bluff can be called in a range of ways
* as I mentioned 10% on the property sale (not worth bothering avoiding) to another landlord. Something avoided by selling to a residential home owner – reduces the extent of the problem.
* a land tax only applying to land which is a income generating asset (residential property, farmland) in place of a CGT (the option of not paying the tax and paying it on the sale of the land/property).
I am satisfied that ring fencing property losses and changes to depreciation rules is enough change for year one, provided there is a year 2.
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I would imagine that buying a bare section in a reasonable area will be near as expensive as any kit house you could put on it. If you could find one that is.
Almost true. Sometimes too true. Depends on the sections. The Developers of course, want to max their profits and so only the most expensive possible houses are encouraged and built on spec. The half-million price point is very standard in the region. Land can go for 120-220k at the asking price.
There are inflated expectations out there still. The folks asking 220 are by and large, going to be disappointed. The properties under 120 are usually significantly impaired in some way, either extreme slopes or power lines. The two-tier tax sounds a treat, but still does not address leveling the competition of me vs the speculator/investor. I’m still paying taxes to replace his tax break and he’s still got an interest reduced loan if he’s structured his finances.
That’s a difference that really has to be removed from the system for the market to reflect real levels of supply and demand rather than speculation.
respectfully
BJ
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Would a purchase tax work? Say 5% on buying a property for the purpose of renting it out.
It wouldn’t dirrectly affect current rental owners. But it would put a damper on demand for more rental properties and therefore keep a lid on prices.
That way, existing rental owners wouldn’t be penalised as such – but they just wouldn’t get as big tax free capital gains, because there would be a lid on house prices.
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Astonishing that nobody has noticed the this about extending the interest deduction to the non-landlord/speculator/investor… which is that the higher prices of the houses become the norm and the advantage of having property becomes more firmly embedded as the cost/value of a house relative to other acquisitions becomes permanently locked into the higher valuations (because I can service that larger mortgage then, without worrying and so can a lot of other people who are distinctly middle class).
It is less upsetting to the market as a whole.
It complicates the tax system, particularly in light of the odd ways that mortgages are structured and issued here in NZ. I rather prefer being able to get a 30 year fixed, but I can’t imagine that sort of thing here, and the mixtures of loans and interest rates that changes all the time around the homeowner is significantly more complex than anything I ever imagined. That makes the interest deduction a truly artistic creation for the accountants who are structuring the finances for this purpose.
No, I am NOT looking forward to the discussions with the bank.
BJ
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photonz,
You keep tinkering at the edges hoping that some sort of taxation will force a decrease in house pricing.
It simply wont work when far larger forces are at work.
1.- Cost of new housing. (around $300K to $600K depending on where and what quality)
2.- 45,000 imports per year who need somewhere to live.
3.- Land restriction preventing new housing developments.
You also need to look at how much revenue your tinkering taxes will produce versus the cost of doing so.
Start by reviewing the turnover in residential rental property. Wont be a whole lot.
Not that you would be able to measure it accurately as the sale of the company that owns the residential house does not require the title, on the property, be changed.
The company office simply changes the names of the shareholders in the company register.
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Gerrit – I agree with your points.
The issues as I see them are
- the country is being badly damaged by high house prices.
- $300 BILLION in profit has been made on residential housing in just a few years, with a grand total of ZERO tax being taken on these profits.
So, how to stop house prices and rent going up, and how to tax the profits being made?
Rental owners have had a free ride for a long time. Good on them = they’ve made good money up until now, but it can’t continue.
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photonz,
That $300 Billion “profit” you are talking about is theoretical money. It ia not realised into a taxable hard cash commodity.
Theoritically I’m a millionaire IF cashed up ALL my assets (housing, CNC equipement, etc.) But I’m not one till I cash up. Until then I’m earning below average wage to pay for the assets and give another NZer a job.
You may take away the depreciation on housing stock but it wont change a thing.
Rents and home affordability will never come down until more houses are built.
It is like the car market. Years ago you could only buy a new car if you had overseas funds and second hand car prices were extremely high becasue of limited supply.
Then they allowed second hand jap imports.
Look at the prices of cars now versus 30 years ago. No comparison. That is what higher stock levels will do.
We need to do the same with housing.
But with the depreciation taken away who will build (fund) them?
The state is borrowing $50M a week so is in no position to build new housing stock.
The private investor wont, it is not advantages with the proposed tax changes.
So house prices will remain out of the reach of the BJ’s of this world world and rent will keep high.
What is happening is a self defeating taxation regime that is going to push prices even higher (add 2.5% just with the GST changes alone)
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Gerrit
Rental property landlords are similar to farmers in that their incomes are low while their wealth increases. And most similar to farmers in not avoiding being taxed on their CG when they sell the property by favourable tax treatment. Each results in overvalued land.
There was little housing shortage in the 2004-2007 period, yet available credit and confidence in speculation for profit (borrowing against rising value of existing properties) created buyer demand.
There is need to encourage new home building for sale – bit this has nothing to do with those who buy up existing properties to become landlords.
photonz
There are two options – a duty paid when a landlord buys a rental property, or a duty paid when a landlord sells a rental property (instead of unrealised CG being taxed).
Similarly when a company owning rental property was sold it would be liable to the same duty (unless it had paid capital gains taxes on the buying and selling of the houses being sold as part of its property business activity).
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Gerrit
It isn’t about the homes, it is about the land. I can get the home built… most people who want a home would be able to work through the numbers and make it happen IF the price of property were not 20%-30% higher than anyone can afford. In other words, the section I need if I want to build here is tentatively priced at $150 large or more (that’s in an empty development, with a fair amount of improvement done, not a bare section so the developer has added some value). That’s the same I might pay a company for a lock-up shell ready for me to do finishing work.
That puts the value of the land is very high compared to the value of that house, and as a result the folks who build HOUSES on land on spec have been building very damned expensive houses. Back in LA the house value was usually something close to 2x the land it was built on, and that was never a cheap market for builders. Moreover, the value of a buildable section there, if I convert to NZ dollars, was STILL less than what they are asking here.
I see a couple of things going on. The first is that the folks who are “property developers” have a big part in the availability of land. A bare patch of property out in the back blocks means bringing services in or providing for a completely off-the-grid existence. Either is expensive. The effort made for this would be compensated by the lower price of the unimproved property, but the real issue for the owner-builder is that that property is going to be a damned long way from any workplace or transportation.
When a developer does do the work of sorting out the landscape, roads and etc, that’s valuable work. Not to downplay the cost of doing it that the councils impose either. I would hope that we Greens will, in our wisdom, recognize that there are some very real issues with the methods that are used by councils. I am going to be encountering some of this shortly. The stories I have heard are horrific and if (as reported) the council imposed overhead approaches 15% of the cost of a house and section that the developer has already organized, it is both unconscionable and counterproductive.
It isn’t the building that costs us so dearly. It is the land. I know where there are empty plots of land with roads next to them, walking distance from a train station, and those plots of land have been empty for most of a decade now and no real-estate agent can tell me who owns… I can’t even make an offer.
The thing is that the notion of “owning” land is entirely absurd in the first place. WE live for a century if we are lucky and the land swallows us up. The land however, has been there for a thousand years and save for the odd earthquake, erosion and continental drift, will be in exactly the same place a thousand years from now… and we own IT? Conceited b@stards we are.
If someone wants to lock up land through “ownership” and uses it as a form of a bank, that is probably NOT the best use of that land from the point of view of a society that is constrained by its mountainous environment to live on postage stamp sized plots of ground.
I find many things odd… the total absence of re-usable forms for casting standard concrete walls for instance. I cannot imagine why they don’t exist here. Every project builds formwork from scratch, which makes laying concrete block cheaper, but the blocks are far more difficult to get properly insulated.
Meh! So many questionable decisions around these issues. I will probably have to build my own answer.
BJ
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Some of the money will head offshore, which is not a bad thing.
Because the profits will get repatriated here, and eventially so will the money and the capital gains.
That’s much better than wasting a hundred thousands dollars or more per household on inflated house prices.
Currently we’ve got $500,000 houses that are really only worth $300,000, but because so many people want to earn money from a rental the whole country has to borrow an ADDITIONAL $200,000 each from a foreign owned bank.
The house is exactly the same house it was. There’s no valid reason that it’s price should rocket up. It hasn’t got bigger, rents haven’t gone up massively.
It’s just artificially-created market forces.
We need taxation and regulation in place so that conditions are such that rental housing no longer causes a housing bubble that turns all of NZ into a slave for foreign banks.
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