The position of The New Zealand Property Investors’ Federation (NZPIF) Inc
on the three tax proposals
The position of The New Zealand Property Investors’ Federation (NZPIF) Inc
on the three tax proposals
New Zealand Property Investors’ Federation
Established in 1983, the New Zealand Property Investors’ Federationhas twenty affiliated local associations situated throughout New Zealand. It is the national body representing the interests of over 7,000 property investors on all matters affecting rental housing.
Industry Statistics
- 180,000 landlords
- 450,000 residential rental properties
- $78billion industry
NZPIF Position
· Property investors do not have any extra “tax benefits” compared with other businesses
· We oppose any tax increases targeting rental property
· In the event of any changes, they should not be applied retrospectively
Situation
The Government appears to be looking at three potential increases or changes to rental property taxation:
· Ring fencing
· A two year period for applying a capital gains tax
· Depreciation
· The National Party campaigned in the last election on not introducing ring fencing & CGT
Ring fencing
Will have the largest affect on the rental property industry. It could force some investors to sell. It could see impact on rental price increases. Landlords may choose to self-manage properties, ie impact on property managers. Landlord may defer maintenance (to save costs).
Arguments against:
1. There is a supplementary Stabilisation Instrument Report from Treasury concluding that ring fencing is not a good idea.
2. Partial ring fencing was introduced to NZ with a $10,000 limit on off-setting losses, however it was repealed as it didn’t work.
3. Our estimates show that it could increase average rental prices by $100pw.
4. Ring fencing will cause a large and sudden increase in properties for sale which will destabilise the entire property market.
5. National’s Housing Policy Paper, released before the last election said they would “retain deduction provisions for those whose rental property investment runs at a loss, as these provisions are available to a number of other investment types.”
6. If introduced it should apply to all business and investment categories.
Capital gains tax for property sold within two years of acquisition
Although this is unlikely to affect the majority of buy-and-hold investors, it would reduce their flexibility to sell a rental property should their situation change. The introduction of a partial CGT also makes it easier for future Governments to increase or extend the timeframe of the tax.
Arguments against:
1. A CGT has not stopped property price rises in countries that have a CGT
2. It makes rental property more expensive, pushing up rental prices
3. Establishment of the Property Compliance Division with the IRD has been extremely successful in taxing traders and developers who sought to avoid paying income tax on property profits.
4. Changes to the Associated Persons Rules is tightening up traders and developers ability to use family members and associates to avoid paying income tax on property profits
5. It is inconsistent to apply such a tax on rental property and not other investment categories
6. It will provide an advantage to developers who will rent out new properties for two years before selling them for an untaxed profit
7. National’s Housing Policy Paper, released before the last election said they would “To avoid forcing up rents or a massive withdrawal of much needed rental accommodation, we will...retain the status quo on capital gains tax.”
Depreciation changes
The proposals to withdraw depreciation on buildings and or to remove or reduce the 20% loading that applies to the depreciation rates for new assets plant and equipmentare least likely to cause industry harm, as it is spread around all investors and is basically something investors have to refund at some point anyway.
Depreciation is the second biggest tax deductible expense for the average investor, second only to mortgage interest.
Arguments against:
1. Most of the potential $1.3b of tax increases through disallowing depreciation claims on property are from commercial property, not residential.
2. Disadvantages those properties that actually do depreciate eg leaky houses and apartments
3. Does not take account of depreciation clawback at the time of the sale of a property
March 2010