Government listens to the facts
The NZ Property Investors’ Federation is not entirely happy with all aspects of the 2010 Budget, however they are
pleased that Government have seen through many of the false claims made against rental property and resisted calls for
large and discriminatory tax increases for the industry.
This will also be good news for tenants as it will limit the size of rental property increases which could have
eventuated if harsher tax increases had been introduced.
Withdrawing the ability of rental property owners to depreciate their rentals is disappointed, although chattels can
still be depreciated which will limit the adverse affect.
However depreciation of the building is the largest component and our calculations estimate a cost of around $24 per
week for the average New Zealand rental property. While this will not all be applied to higher rental prices, it is
estimated that rents will rise by 4.5% to 6.5% nationally, rather than the 1.4% expected by Treasury estimates.
The NZPIF has established a survey on our website at www.NZPIF.org.nz so that rental property owners from around the country can say how much depreciation they currently claim. If
sufficient owners complete the survey then we should be able to estimate the likely affect of depreciation costs for
different parts of the country.
GST increases will also have a minor inflationary effect on rental prices, although GST doesn’t apply to mortgage
interest costs which is often the largest expense for rental property providers.
Reducing income to increase Working for Families entitlements was never a realistic reason for investing in rental
property, so it is unlikely that removing losses from the calculation will affect the property market.
People often confuse property speculation with property investment. Property speculation or trading is developing or
buying a property with the sole aim of selling it for a profit. That profit is essentially their income and therefore
attracts income tax. Effectively it is a capital gains tax for property speculators and traders.
Property Investment is providing long term rental accommodation to tenants and is treated for tax purposes just as a
business or share investment are. This means that the income is taxed but if the business, shares or property go up in
value then sold, then the capital gain is not taxed.
If property traders or speculators are passing themselves off as investors when they are really speculators or traders,
then it is appropriate that the Government fund the Inland Revenue to stop this from occurring.
The changes to LAQC and QC company structures is to tax profits at the investors top marginal tax rate rather than the
lower company rate. This will increase the tax Burdon for some rental property owners who use LAQC’s, however as the new
rule applies to all LAQC and Qualifying companies, then it is equitable.
There is concern about the level of losses that can be claimed and this will need to be looked at more closely.
ENDS