397,000 kiwi families currently live in homes rented from private landlords.
There are 189,100 individual landlords who own rental properties. Obviously most own one but some own many properties but it averages out to about two.
The total projected revenue from eliminating the depreciation write off is $1.3b. That involves housing rentals, industrial and commercial. Depreciation on housing is pretty much a fiction. It is real on most industrial and some but not all commercial buildings.
The average is $3,274 per rental property.
There is currently a tight housing rental market in New Zealand and especially in Auckland. The tightening up of the tax approach around property owners liability for tax on capital gains is already pushing some landlords out of the market and causing rents to go up. Both TV channels have reported on this recently.
Landlords are making it clear that it is their intention to recover their extra costs (write off forgone). Of course they won’t be able to do it overnight – but they will over time.
My calculation is that the average residential rental property will inolve a loss of about $45 to the landlord v current depreciation arrangements.
(Average house price 416k but I’ve used median 360k. 2% depreciation = $7,200. 33c tax rate = $2,400 say $45 per week)
Can John Key guarantee that all families that rent their houses and get this increase as well as that in their GST will not be worse off.
And what does Bill English say. His rent was paid by the taxpayer for years because he declared Dipton as his primary residence when he lived in Wellington.
But most of all who thinks it is fair that rents go up to give tax cuts of hundreds of dollars a week to the highest income earners in the country.
Not me.
Update Comments below have suggested that my estimate is high because I haven’t taken out land prices. Other emails have suggested that there are higher depreciation rates and that because a proportion of rented premises are apartments land is not quite the issue some suggest. I’m happy to use the property investors $34/week figure for the purpose of the discussion. The post goes to the principle.
Argh, That is GuST great!
Trev, perhaps you should review and edit this post to eliminate a major error and some minor ones !!
You cannot claim depreciation on land, so your average house of $460k contains a land component.
re depreciation on housing is pretty much a fiction. Please ref to a tax expert as all you need to do on sale is to get the new owner to agree on a breakdown of values from land to buildings. If the new owner is a occupier then they are not concerned to the mix. Thus you can achieve a capital gain on the land and report a depn loss on the building. Perhaps Lab should review the rental situation as there are rorts aplenty here that pervious govts were afraid to vetnure into. You and others were happy to stiff the PAYE worker for the tax dodges.
Aaah Herodotus as a former “tax expert” I say nicely done……!
Already poor landlords are subsidising tenants. The rents acheived give a pathetic 4-5% return on the asset value here in Wellington City. With interest rates at 7-8% and add rates and insurance and maintenance and management fees even although these are tax deductable expenses the are limited economically feasible arguements for owning residential property.
At the end of the day the rental market is driven by supply and demand – if I charge a rent that is too high to attract a tenant, then those tenants will simply go elsewhere. We simply cannot charge more rent despite what the costs are if there is not the demand.
Maybe Labour should have used their decade in Government to actively increase supply rather than moaning about limited suply 15 months after being evicted from Government. (eg RMA reform).
We are ALL tax experts until the IRD visit then we plead ignorance.
Unfortunately the IRD do not do enough visits when it comes to rentals and trading in property, and govts do not close rotrs in this area. It is better to have housing rorts and support than to attack your potential voter base.
I’ve been saying that rents would go up for a while. I know one other person who last week have been warned early by their landlord that they are going to sell, and they would receive their 60 day warning in about 6 weeks. Nice landlord giving plenty of warning. Maybe its time to visit housing NZ for me?
My lease is up and they haven’t asked me to renew it. Its making me a little nervous. My rent has only gone up by $10 a week. I predict that they will put it up $10 every 6 months or so or sell.
A mother, unfortunatley for you and others the economics of buying/building and owning a rental did not make sense 3 or 4 years ago, the return did not marry up to the outlay and the tax treatment (Govt subsidy) only hide this from view. Going back to fundamentials the cost of housing is too high in NZ. For me anly way the recession did not hit/ make a correction in this. We are bach to the levels from the hieghts of 08. I hope I am wrong but the longer this may occur the greater the crash that we could expect. There is alotthat confuses me re house prices in NZ. e.g Cribs should be about 1/2 – 2/3rds the price of a house not costing more. House prices should be 1/4 – 1/3 cheaper. How this correction could happen ? beats me.
What I do think is that the rental tax treatment has to be reviewed and postings like this tell me that Lab is not the party to do this, perhaps they are scared of being bold?
Okay here’s a thought: if landlords can’t afford their rental properties then they should SELL them back to the people who, but for the baby boomers buying up our first homes, wouldn’t have been renting in the first place!
Monty: “already poor landlords are subsidising tenants” – when you’re paying $400 plus per week for a place in Wellington you certainly don’t feel like the landlords are giving you a break! We were paying $350 for a dive in Ngaio in 2006 because the $300 dive we were living in up the coast prior had rotting piles & the roof collapsed! Hate to think what both places charge now.
Herodotus: I used to be the IRD that visited….! And yes, the whole industry needs a shake up and I agree, I’m just not sure Labour is the party that will do it. They didn’t in the 9 years they were in office and don’t seem to be willing now.
A Mother: while it is all politics & debate for people like me as I am now a home owner, I can definitely empathise with how even the smallest negative change in your circumstances, including even your rent going up by $10 a week can have such a massive impact.
I desperately want the shake-up, but I want families like yours protected from the inevitable (but I think only temporary ) full-out.
Herodotus, sadly boldness is something neither National nor Labour want to be on tax or much else. This is to the detriment of us all.
Well Trevor, the only way to avoid rent increases is to purchase a propery – oh but hang-on many of us cant because thousands of in are in competition to enjoy the tax benefits. We are stuck in a vicious cycle. Closing the tax loopholes on property simply has to be done – rent raises or not. Its only then that perhaps we may see some more affordable housing back on the market.
OK Trevor we all know that Labour was quite comfortable with tax payers subsidising rent for 9 years but Labour are in opposition so perhaps you could be explicit about what you will do if in govt.
Will you return public subsidies to landlords or will you not?
Trevor, one more point – there is a big difference between targeted assistance for low earners to help them pay their rent VS tax payers contributions to people who own multiple properties.
You should think before you blog Trevor, this post is framed like a prep-school kid wrote it.
All I can comment on is how it will and am seeing it is effecting renters. This is not my area of expertise.
Maybe it is something that I will have to look into how it works a little more when I have the time.
I contest that depreciation is a fiction. I had a tenant in my house for about 10 years till about 2005. Over the years everything got progressively older. The kitchen, its appliances, the bathroom, the interior paintwork, the carpet…
As an aside, I never raised the rent in that time, so that by the time they left I was about 25% under market rent. The reason was mainly because a) they were superb tenants and b) the place was wearing out. So stop painting every landlord with the greedy-brush from that envy-pot.
They finally moved away to ChCh so I did a front-to-back renovation. Brand new kitchen, bathroom, paint, carpet, installed mains smoke alarms, installed a heat pump etc.
Let me tell you that cost plenty. I haven’t added up the total depreciation I claimed over those 10 years but I’d be surprised if the total claims came to $30,000 which is what the reno cost.
So tell me that there was no depreciation again…?
A Mother
Perhaps if Trever didn’t try and confuse people by conflating tax cuts and the removal of tax payer subsidies for multiple property owners this would be clearer.
I would expect a genuine Labour party person to claim that the half a billion dollars that will stop being paid out to owners of multiple properties be allocated to rental assistance for low earners – but no… not Trevor – he wants you to think tax cuts will put rents up.
And some owners are able to claim WFF. This area is a mess and needs a complete review. Lab allowed this to drift and they have the cheak to comment on looking after the rich by the Nats. Actions here display really that Lab also were happy for the rich to have favourable tax loopholes to operate under, and from this contribution by Trev he is happy for this to continue. How does Nats differ from Lab both are happy for the wealthy to advance, and still no comments to the error with the calcs/
Trevor
If nothing else was changed in the May budget other than removal of the ability to claim depreciation on appreciating assets then rent will still go up.
In the context of rent increasing you say;
Two separate things;
1) Tax cuts.
2) The removal of the ability to claim depreciation on appreciating assets.
This really is prep-school level spin Trevor, what on earth made you think it made sense to conflate these two things and frame rental increases against tax cuts. As I said to A Mother, call for the tax savings from axing the ability to claim depreciation against appreciating assets to be allocated directly to the low income housing budget – go right ahead because I would well agree with that.
Look, Landlords don’t need any reason to put the rent up, they do it anyway (every year, for no reason) and they say its the ‘market’ BS – its greed and this scaremonging is just another way to influence the ‘market’ to stretch people further and force them to complain less about the rat hole rent traps that are typical of the NZ rental market.
What’s really going to happen if these pillars of society pursue other more selfish interests instead of providing the social service of housing? (yes, that’s sarcasm BTW) Well, the price of housing will go DOWN meaning more people renting will be able to BUY them…. that’s what!! So we’re scared that students might not be able to rent a room for hang on, current bargin price of $200 each in a two bedroom place bringing in $400 a week for a rat hole?? Of course they will …!! The fact is a lot of rental properties aren’t negatively geared and its the ones that are that produce the most vicious type of property investor looking to squeeze the most out of the tenants. Good riddance, good bye and good luck in Australia or where ever else you’re threatening to go. Seeee yaaa! Let property investing be left to those that don’t need the tax break to make the money – they are least likely to force an extra $34 a week out of a solo mum with kids. Yeah, feel the sympathy for the grandmother bringing in $700,000 a year in rent.. boo hoo. Not fair.. sure, not fair.. here’s a hanky.
Bring on the changes! Do it now before the moronic NZ media actually falls for it
But burt, if the government compensates those renting for the rent impact, will the government have the money for cutting the top tax rate as well?
One presumes Labour’s position is designed to result in a government promise to include compensation to those renting, or the political backlash of their not doing so. That is appropriate and effective political advocacy.
That said some of the rising rent pressure in Auckland comes from immigration and the fall-off in home building – so the rise in rents to come will be greater there than caused by tax changes.
As has been noted, the depreciation claim is not as high as stated in the post and it would be appropriate to adjust the figures.
Labour should actually come out and support the government changes to depreciation and ring-fencing property losses – provided they compensate tenants and invest in some new home (state housing) building in areas of housing shortage with the money, rather than cutting the top rate.
Besides, the point of a GST rise is to discourage spending and encourage saving – those on the top rate (who can afford to save) should receive their tax gain via lower taxes on their investment income (this should appeal to those saving for retirement and those already retired recovering from financial losses).
To those who complain about me not responding please remember that I do have meetings to attend. In my opinion the loophole has to be closed but as the $1.3b is returned as tax cuts then the focus should be on dropping the lower rates and increasing the lower thresholds to get cash into the pockets of the families that will be hit both by the GST increase and rent increases.
The point of the post was to highlight to the government a group that they must consider as they make their final tax decisions over the next two weeks.
Herodotus says:
March 11, 2010 at 9:18 pm
Put that in context. That situation has little to do with owning rental properties. In order for me to be able to lower my declared income to a level where I could claim WFF, I would have to have such a massive negative gearing as to be ridiculously exposed to a negative event like loss of job, or extended vacancy, or property damage.
I would venture that the majority of those that have high cash inflows, but low declared income are the self employed that operate their businesses via companies and trading trusts that pay them an unrealistically low wage.
I remember being at university in the 80’s (you know when we got ‘free’ tertiary education), operating on a hand-to-mouth basis financially, struggling to understand how I could not qualify for a hardship allowance when the farmers sons and daughters, who all had cars and didn’t have to work every term break, and popped over to Aussie for summer fun, all qualified for those allowances.
People need to understand; there are no loopholes for residential property owners. Every line item on a landlords tax return is the same as on the tax return of every small business owner, and every Bob Jones outfit.
If governments over the last 20 years had directed IRD to be strict on property traders buying, redecorating and selling, or buying off the plans and selling when built, the reality is that this problem would be much reduced.
I own rental properties. I am paying tax this year. Just like last year. And next year. The fixation people have that rental property owner = tax dodger is as ridiculous as suggesting Muslim = terrorist
Roupp- there was reported that 9700 families were able to utilise LAQC’s to enable them to receive WFF, that is quite a few using a loop hole to recieve welfare that was not intended for them. There are plenty out there who are using the law to excape paying tax, and I dissagree there are plenty of advantages that property owners get that other investments do not, otherwise why would you buy a business that does not have the cashflow to cover the investment?
Trev you have not made any comment as to what is the cure for the housing and tax changes. So by the time Lab was in power we take it you accept the status quo?
Herodotus. Look after those in poverty as changes are made. And you will see Labour’s votes in May and our policy next year.
Rents may increase in the short term, but will not increase in the medium to long term.
Rent prices are NOT driven by supply and demand, but by what people can afford to pay as a percentage of their income.
If rents do increase, people will simply have more people living in the same rental property, or move to a cheaper rental. If they cannot afford to pay they will not.
Ultimately this will lead to empty places, and a rebalance of rentals to owned property. With empty places, landlords will have the option of letting it at a lower price, selling, or being forced to sell by that nice man down at the bank.
The problem with rentals has been that ordinairy NET taxpayers have been subsidising them, through not only landlords tax losses, but the housing supplement. Both of these factors have in turn driven up house prices.
Remove all tax incentives, housing supplements et al, open up land and let the market do the work. This will reduce house prices, thereby ultimately reducing the rent, as landlords will be return to a proper yield of ~7%.
It is all this interference in the market that has distorted house prices. Ultimately created by the introduction of the top tax rate at 39%.
Labour has been well and truly sucked into going into bat for the property investors on this one. But I guess, if anybody in Labour actually had the faintest idea about economics 101 and how a market operates, then they might have cared to understand, before shoving foot firmly in mouth….
I will look forward to the announcements, and I hope that there is some boldness in your policies, that are not just vote grapping but do have a strategy fo rthe country. And some proactiveness in fixing some of the rorts that both Nat & Lab have allowed to fester in protecting vested interest groups (Which even politicians from both sides have benefitted from)
“And you will see Labour’s votes in May and our policy next year.”
Trevor why do the announcements always have to be about strategy first and foremost, why can’t Labour come up with something of substance now and throw some good alternatives at National? Why does politics always seem to be about the game before the people?
People are facing issues NOW and are trying to get through this year. People are paying too much rent NOW and are paying too much NOW for those who are not paying their fair share.
If Labour wants to show they are serious about ‘getting back in touch with the people’ then they/you need to recognise that even though we are on how way to being half way through the current term, the 9 years they/you were in office still feels like yesterday for all of those who voted against you last time.
For me personally, any change where those who are rorting the system are made to be held to account is a good thing. I will take any crumbs thrown at me at this point as I have had a gutsfull with how things like landlords have been able to rort the system for all its worth for far too long.
The houses will still exist and people will still live in them- the only thing that will change will be the ownership. When the speculators exit the market then house prices will drop. It may take some time but when the prices finally drop to a reasonable level then ordinary people will finally be able to buy a home of their own. Fewer renters and more home owners- sounds like a good thing to me.
Prices also need to return to a level where long-term investors can buy a house and make a decent return without needing a tax-payer funded handout.
Once upon a time Labour would have supported law changes that helped the average New Zealander into a home of their own. Labour knows that all the social indicators improve when people own their own homes. Somewhere along the line you guys sold your souls.
Thanks for the heads-up on where Labour stands on property speculation Trevor- I certainly won’t be voting for you next time.
Jenny unfortunately I agree with you regarding party stance on property speculation. One other note I get that rentals from this post are a cost plus mentality “Landlords are making it clear that it is their intention to recover their extra costs (write off forgone).” So can we expect more increase in rent when interest rates start increasing by another 2-3%. I did not see rentals reduce when rates came down inconjuction of the OCR reductions from July 08 to Apr 09. There is far to much artificial stimulus in the property market (Much of this the cause of central govt policies in conjuction with local body (mis)management of of land. There is plenty of “low hanging” fruit that can be picked on this area, and I think there would be a net supoort trafe off on this. Pity there is no commitment to do so. I know it must be hard for an opposition to constructively add to a govt policy BUT for me here is a prime example to, NOT this Winny Peters playing politics. The appearance is that someone is looking after the landowners.
Herodotus
Perhaps you refer to articles such as this.
I am so sick of people promulgating inaccurate information.
Please read it again. You will notice that nowhere in that article did Bernard mention LAQC’s. He did talk about losses from rental properties. This is achieved by using legitimate claims that every other business utilises. These claims can be made with investment properties regardless of whether an LAQC is involved.
The rather muddled statement of his was:
So he’s mixed up losses on investment properties and income sheltered in trusts and companies (employer). The biggest way of sheltering personal income from the IRD is described in his second statement. Be self employed, have all work executed by a trading trust or company, and be paid a ‘wage’ by the company of some ridiculously low amount. The company and/or trust then buy and own the palaces with views over Rangitoto while the individual cries poor and claims WFF.
Have no doubt, the biggest component of the rort perpetrated by this particular family is the use of companies and trading trusts to generate income of which only a tiny portion is paid as a wage to the individual. I bet the main breadwinner/s of this family are builders, or plumbers, or a panelbeater or some form of contractor or business owner.
Once again the biggest problem here is the failure of IRD to adequately examine the circumstances of those that claim off the government. Why have we not had any IRD audits of people who are on a benefit but seem to be able to drive around in new Chrysler 300C’s (ie the Harris family). Why haven’t we had an IRD audit to examine the company structure of the family in Bernard’s example to determine whether they have structured their affairs purely for the purpose of avoiding tax. That is (I think) a crime with which someone can be charged.
And finally, stop adding (LAQC) to what people have said in order to further your prejudices.
roupee
You make a very valid point that not all rental property owners are taking all possible opportunity to rort the tax payers. The key problem is that as long as people like Trevor continue to conflate tax cuts and income/consumption tax changes with the likelihood of increases in rent ( which would be a result of certain depreciation loopholes being shut down) the debate will continue to miss the point.
See Trevor and his party clearly have little concern that some landlords (clearly not yourself) have structured their affairs such that they gain maximum advantage from the tax payers. If Labour did have a concern about this they would have done something during their 9 years of telling us they had made the tax system more fair.
Funny that Goff suddenly woke up and decided the tax system needed changes after claiming it was fair for 9 years – seems Trevor still wants status quo, hardly surprising from somebody who wants us to thinks tax cuts make rent increase. Hell Mallard must have had a few sleepless nights when he supported Cullen’s tax cuts in 2008, but we all know – these things are different when Labour do them.
@ rouppe – IRD haven’t audited these people because what they are doing is legal. The problem of those claiming WFF (whether that be Family Assistance, Accommodation Supplement or the Childcare Subsidy) while having a high level of income disguised by the way they structure their affairs, actually lies with Work and Income. People are paid under the Social Security Act, not the Tax Administration Act. What needs to happen in order to prevent this kind of thing from continuing is that both Acts need to be amended to prevent the rich people from claiming this kind of assistance. The tax laws need to tighten to prevent people from paying their fair share whether that be tax or things like Child Support and the welfare laws need to tighten to stop people who don’t actually need assistance from claiming that assistance.
With regards to LAQCs & rentals yes I agree, there is no difference between the benefits of that and claiming the rental loss as a normal business loss – both work to reduce your taxable income and thus, your tax liability.
What really annoys me about the rental properties though is that not all rentals are treated as a ‘business’. They are instead, treated as an investment for tax purposes yet the reality is everything about a rental in normal circumstances does in fact pertain to business activity. The whole purpose of a rental is generate wealth, how is this different to say investing in a mate’s business in the hope of getting a good return when you come to retire? This is THE loophole and where landlords get to be a little sneaky.
When the rental is a business they obviously still need to declare any profit or loss however, the loss cannot be deducted from their other income for working for families purposes. If they are an investment then they can.
The problem is that there are too many businesses claiming to be mere investments. The rules around this need to tighten. As far as I can see, National is the only one that has actually even hinted at doing this.
Rebecca
Huh? The investment is a business. What’s happening is that people would prefer to pour their money into something they own rather than pouring it down the government pipe when they see the wastage happening.
So Joe Bloggs is on a $100,000pa salary. They buy an investment that happens to be a rental property. Could just as easily be your mates business but then 1) Getting the investment capital could be harder/more expensive and 2) You have to deal with your mate. Who might not be your mate in 6 months.
By virtue of the nature of the investment certain accounting practices can be followed. The rental doesn’t earn enough to pay its way, so the investment make a loss of (for the sake of the argument) $10,000. That loss can be defrayed against their salary and the end result is that Joe declares to IRD that their income is actually $90,000 and they’d like $3800 back please. This is backed up by their accounts.
They then shove $10,000 into the rental to cover the mortgage, rates etc payments which if they didn’t pay would cause legal trouble with the bank or the council. But at least the $7200 of that which they’ve had to stump up out of tax paid earnings is going into something they own. Yes $3,800 of the money used to prop up the rental comes from an end of year tax assessment that says they overpaid that amount. So what. Small beer to be honest.
I still contend that the major problems are caused by
1) IRD not assessing frequent sellers as traders. It would only take a few to get hammered and behaviour will change. By not doing anything, just like removing corporal punishment, behaviour deteriorates and is further fuelled by still doing nothing.
2) Self employed setting up company’s and trading trusts to engage in business worth hundreds of thousands of dollars, and then paying a ridiculous salary (ie $27000). The use of the vehicles is fine however the failure by relevant govt departments to properly assess a persons circumstances is shameful.
There’s no way the Harris family should be able to claim a special needs grant to put tyres on their new Chrysler without asking how they can afford the thing in the first place. There’s no way a family living in a top suburb on the North Shore should be able to access WFF without finding out how the hell they get to live there and drive expensive cars. That’s the sort of wastage I find most irritating
Hi rouppe
I agree with your 2 points however they pertain more to the greater tax issue than the rental properties themselves. Further 1) just requires more IRD audits, 2) would require legislative (tax) change & as for the harris family – well that comes down to a very lax & irresponsible Work and Income Office (sickness benefit because of weed…..?!!!!). That family are the exception, not the rule. And no system can ever be fool proof when it comes to people who are determined to commit fraud
With regards to you questioning my statement above, I have just found this on the IRD website where page 16 of their Rental Guide states:
“Working for families tax credits
Treatment of rental losses for the calculation of working for families tax credits depends on whether your rental property is an investment or you are in the business of renting properties.
Rental properties as investments
You need to declare any profit, and if you make a loss you can deduct the loss from your other income for working for families tax credits purposes.
Rental properties as a business
You need to declare any profit. However if your rental activities are a business, any rental loss cannot be deducted from your other income for working for families tax credit purposes.
If you are not sure whether your rental activities are a business or investment, please ask your tax advisor or phone us on 0800 227 774 for more information.”
http://www.ird.govt.nz/resources/1/e/1efe4c804bbe591281ffd1bc87554a30/ir264.pdf
Hence my distinction between rental properties that operate as a business as opposed to an investment.
Another thing in terms of the changes I would like to see implemented is that I would like their to be a capital gains tax on the capital gained less depreciation (which is usually next to nothing).
My understanding is that currently if the book value of the property is great than that of the original purchase price they only have to pay back the depreciation claimed.
When you think of the gains some people have made from the sale of their ‘investment’ rentals over the past decade it seems grossly unjust!
Rebecca
OK, fair enough. The distinction seems to be where your primary income is coming from. I’m a salaried employee of a public company (ie it’s not my company!) so my primary income is from that employer.
The latter situation is someone whose primary work activity is renting…
We’ll have to disagree on the capital gains matter. If you did as you suggest and tax only residential property the tax will just drive different behaviours and shift the problem somewhere else instead of fixing who’s really ripping taxpayers off.
After all what’s the difference between selling a house at twice what it cost and shares in some public company for twice what it cost…
Yes but with the rentals for many their “primary work activity” is actually their job, not the rental. From my understanding, most landlords have yet to retire…e.g. the baby boomers who are only now starting to retire!
Yes I agree re the potential of the capital gains tax to move the rorters elsewhere.
Re “what’s the difference between selling a house at twice what it cost and shares in some public company for twice what it cost…”
My understanding is that there is plenty of differences such as the fact that most rentals are claiming losses which serve to reduce their taxable income where as many shareholders get dividends and pay taxes on those dividends which obviously increases their taxable income.
Except of course those investments like forestry which are normally partnerships running at a loss or LAQCs.
With any changes there is always going to have to be some compromise and of course some people will always manage to find a way to slip through the system, but it would be good to some changes come out in May that are more that the toothless options currently on the table. I am quite disappointed how National seems to be just as gutless…
Oh boy…. On a share portfolio, you add up income from dividends, deduct imputation credits (tax already paid by the company), expenses in managing the portfolio such as brokerage, magazine or analysts subscriptions, subscriptions to the Shareholders Association blah blah blah. You pay tax or get a refund on the net.
With a rental property you addup income from the rent, deduct expenses such as interest, rates, insurance and maintenance blah blah blah. You pay tax or get a refund on the net.
It’s the same. Doesn’t matter if its houses, shares, art, wine, coins. The only thing special about buildings (and plant) is the depreciation, which, remember is subject to clawback on sale…
Anyway enough of us, I want to get back to slapping Trevor.
Trevor… Rents are not going to go up because of any cut to personal taxes. Rents might go up if the entire landlord community conspire together to raise rents in unison. But come on you can’t seriously believe that will happen.
Another reason why rents might go up is if the dynamics of being a landlord change. If the government suddenly said there will be a $1000 a year mandatory landlords registration fee then you can be certain rents will go up $20 a week.
What’s more likely to happen is that a government will target residential investment in some way such as removing depreciation (though at least this looks like it is intended to apply to all property investment. This might drive some landlords at the margins of negative gearing to get out. But what you’ve done then is reduce supply. The rest of us will sit quietly waiting for immigration and the lack of new building to generate demand for a diminished resource.
Then rents will rise, and it will be because people like Trevor have jumped on a bandwagon rather than concentrating on the real problem like why only half of the 100 richest people pay the top marginal tax rate.
And the answer to that is the example I gave above. No-one is examining the circumstances of people who live in top suburbs driving Landrover Discovery Sports but only declare $27,000 in income.
I’m had enough of countering the misconcceptions. I want to go back to slapping Trevor.
Rents will not go up because of any personal tax cuts. The most likely reason rents will go up will be because someone messes with the dynamics.
What is looking likely to happen is that some things will no longer be able to be claimed such as depreciation. It might be enough to cause some over-geared people to exit the industry. There might even be enough do that to cause house prices to drop a bit.
However ultimately the shortage of new buildings, combined with an expending population means that sooner or later there will be an increasing demand for a diminished resource. Then those that have sat quietly will find the law of supply and demand will drive up rents.
All because people like Trevor have jumped on to a bandwagon rather than deal with the real problem, which is why only half of the 100 richest people pay the top marginal tax rate.
The answer to that is what I said earlier. No-one is examining the circumstances of people who live in top suburbs, drive expensive cars, but declare only $27,000 of income to IRD.
rouppee – of course we have to deal with loopholes including those that lead to only half of the richest people paying the top marginal tax rate. Of course we don’t know that they are NZ resident for tax purposes.
This includes write offs for non existant depreciation. It includes people who use companies and pay themselves depressed salaries (tho from memory the Court of Appeal may have sorted that) and those that launder income through trusts.
Bill English is funding his tax cuts which are heavily biased to higher income groups through increases to GST which will hit poorer people and a change to the taxation arrangements for rental housing which if all other things are equal will result in rents going up which will hit poorer people.
I’m not saying it shouldn’t happen but just it goes into the mix when making decisions on the shape of income tax cuts.
Trevor
The tax cuts are not heavily bias toward higer income groups. This ‘bias’ you pretend exists is a result of having a progressive taxation system that is heavily bias toward taking more off high earners.
Reduce the tax rates naturally has the consequence of giving more back to high earners when you have a progressive taxation system. However if you want to say that the progressive model is flawed because adjusting tax rates has this effect then I won’t argue with you.
burt – depends on whether you drop rates or increase thresholds.
Trevor
Shall we do some examples or would you like to think about this a bit more first?
burt, given that many of those on higher incomes do not spend all of it, they do not need a tax reduction of the same extent to compensate them for the 15% GST cost on spending. Remember this is not a tax cut made because of a surplus, but one to ensure people are no worse off after the GST increase. For some reason the income tax cuts proposed are only intended to leave only those on the higher incomes better off.
If the government was only intent on compensating people for their GST cost increase, they would only reduce the lower and middle income rates and leave the top rate alone.
Now they will claim they want a better balamce to tax policy as well. However reducing the top rate is only one of a range of possible options. In terms of the intent to discourage spending and encourage saving – they should be be reducing tax on investment income (reducing the rate of tax on interest income) and business investment (R and D tax incentives for example).
SPC
Introducing a zero rated threshold of perhaps the first $10,000 would seem to be the best way to compensate for an increase in GST.
Trevor,
It’s rouppe, not rouppee
Huh??? Surely in order to apply for WFF one has to be NZ resident for tax purposes because WFF is a tax rebate, and you apply through IRD and declare that sheltered income… At which time IRD should be doing some looking
rouppe
To stop the use of trusts and companies (and trusts with companies as trustees) protecting income from one of the lowest rich thresholds in the OECD you need to either abolish trusts as income distribution vehicles (good luck with that) or you need to remove the benefit of doing so.
Completely aligned and flat tax thresholds completely negate any benefit by virtue of how your affairs are legally arranged. Consumption taxes seem naturally balanced by tax free low income thresholds, unbelievably Cullen never liked this idea, I wonder if English will.
There is much work to do unwinding Labour’s taxation legacy of a sharply progressive system with very low thresholds with social policy heavily reliant on selectively churning peoples own money back to them.
Rouppe you have to compare like with like when you are talking about a rental property versus shares.
Those who have shares to the extent that they can claim expenses pertaining to those share portfolios are no doubt in the ‘business’ of buying & selling shares thus they have to declare everything pertaining to that ‘business’ & pay tax accordingly. This kind of example would be better compared with those in the ‘business’ of renting properties as opposed to those who have properties for mere investment purposes..
Investment properties are treated the same for tax purposes such as those who have a few shares in Contact. They declare the dividends etc but because they are no in the ‘business’ of buying & selling shares they can’t claim expenses.
Conversely, while investment properties, like small time shareholders don’t have to pay tax on the profit gained from selling their property (just like the small time shareholders don’t have to pay tax on the gain they make from selling their shares) they can STILL CLAIM EXPENSES.
This is the DIFFERENCE and it is this that I want someone in government to address.
Investment properties are always a business, small time shareholders are not.
And yes, getting back to Trevor….
“It includes people who use companies and pay themselves depressed salaries (tho from memory the Court of Appeal may have sorted that) and those that launder income through trusts.”
NO WAY has this been sorted!!!! Just go out and survey the number of companies where the 100% of the shares are going to one or maybe 2 people, companies whose volume of work in no way reflects to the low shareholder employee salary being paid…
Re “Of course we don’t know that they are NZ resident for tax purposes.” Well if you’re not a NZ resident for tax purposes can’t possibly claim WFF and you most certainly don’t even have to pay tax here! Non tax residents are liable to pay tax in their own country only. The only advantage they get is tax paid on dividends they receive where they get the cover of the double taxation agreements..
@ Burt: I agree re zero tax on first $10 and also with “reduce the tax rates naturally has the consequence of giving more back to high earners when you have a progressive taxation system.”
Basically if you’re not paying much in the first place you can not possibly expect to get the same tax cut benefits as those that are paying so much more.
Take the average wage as say $45k. Our tax ALONE is $27k. Why should the person on $45k get the same benefit as us when they are not even paying a 1/3 of what we are paying?
Of course tax cuts benefit those on higher incomes more – they are PAYING MORE to begin with.
@ Labour: you have to stop this spin. It is pretty much guaranteeing National gets another term.
If you want to regain some of your credibility then come out with something we can all sink our teeth into – such as how to sort the loopholes so people are paying their FAIR share; something that makes National look more incompetent than what many of us found Labour to be in the last 2 terms.
@ rouppe – sorry flicking around can’t see both at once. Rebecca half makes the point that you have to be NZ resident for tax purposes to get WFF but the rich listers are not resident here – nothwithstanding in some cases having massive assets here.
@ burt I agree with you re alignment – not many of my colleagues do though. We probably wouldn’t agree on the level. I would do it in a revenue neutral way.