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.
@Rebecca
There’s no other way to say it Rebecca than you’re plain wrong.
I am a salaried employee, and my primary source of income is from that day job.
I own (2) rental properties. I can claim expenses related to those investments such as interest and rates.
I also own small parcels of shares. I CAN claim expenses related to that investment. If I had borrowed money to buy those shares I could claim interest for them too. I can claim brokerage. I can claim the accountants fees for doing my return. The fact most people miss this is because they are usually in shares via a unit trust from Tower or something and Tower does all that book-keeping for you (and charge a nice fee for the privilege I might add).
I am also a partner (1 of 700) in a forestry block. This partnership can also claim expenses and every year I get advice of what my share of that loss is. Interestingly since the purpose of leasing the bare land and planting the seedlings was to sell them for a profit at harvest, I will be liable for tax on the profit of the sale of the logs less harvesting costs less transport to the wharf.
Payment of capital gain all depends on the intent of the purchase. Buy and hold houses for rental income = no capital gain. Buy a (doer upper) house to flick on for a profit = trader = SHOULD incur capital gain (current law) but IRD are too damn lazy to chase those.
Buy and hold shares for dividend income = no capital gain. Actively buy and sell shares = trader = should pay tax on the capital gain.
Spot on the mark regarding those claiming WFF needing to be tax resident. Made the same point myself… I’ll be posting to Trev shortly.
@Trev
Then they’re not ripping off the taxpayer and they’re not claiming WFF and they’re not going to get a tax cut, so lets concentrate on those you were railing against.
Tax cuts are not going to put up rents.
There will always be landlords.
There will always be those that have to rent, and there will always be those that choose to rent.
If you target landlords to the extent of driving some out of the market then you’ll get your short term objective of ‘freeing up housing’ and ‘lowering house prices’ but the fundamental problem of not enough housing being built to accommodate an expanding population will remain. Once your short term ‘hit’ has worn off there will be fewer landlords, fewer rental properties, but a rising demand for somewhere to live. Ergo rents will rise.
So I’m sorry to say that in my opinion your efforts are going to be counter productive.
You should be encouraging me to supply rental housing so you don’t have to. You should be encouraging me to make as much darn money as I can so that I can contribute more tax. A punitive marginal tax regime will not encourage me to do that. A flatter tax regime will, with the added benefit that someone on $55,000k won’t sit there and say “I can’t be assed earning more money cause Cullen/English/whoever will just take it off me”. I’d rather pop out a couple of kids and end up earning the equivalent of $70,000 cause I’ll get WFF. How stupid is that. What a perverse incentive.
Ok Rouppe here’s the thing – I’m an ex auditor and policy analyst and what you have told me makes the alarm bells go off.
By your own account you are clearly an IR3 filer (hence the ability to claim the expenses you have outlined) and you are clearly managing to play around the boundaries and avoid paying what you should. In my (albeit rusty) opinion, you are clearly in the business of renting properties and you are most definitely in the business of buying and selling shares.
Many small time shareholders are not, they get the Personal Tax Summaries only, declare their dividends and that’s the end of it. This is where the difference lies in terms of these shareholders versus investment properties.
You do not and should not be falling into this group. And it is this that I want to see changed.
I do however, find it curious that we have by and large agreed on proposed changes (except for capital gains tax) considering that you are one of the groups that is benefiting most by the complacency of past and current governments.
Further, you MUST be an IR3 filer in order to claim the expenses you have detailed above; but for your rental properties and your share of the loss in the forestry partnership, you would not be an IR3 filer and thus, not able to claim the expenses pertaining to that “small parcel of shares”. You would be a PTS filer only. The PTS does not accommodate such expenses. This is the distinction, however clumsily, I have been trying to make.
As this has gone off topic, I will leave it there. If I’m wrong well I will find out next week as us my friends who are still in the industry.
Re WFF – well said. :p
Sorry moderators, I will make this last point to Rouppe and then let the issue get back on track..
Rouppe I just double checked the info on the IRD website and this is what it says in relation to expenses you can claim on a PTS (just in case you want to disagree with what I have said above):
“…you can claim any of the following expenses….
*Fee paid to someone for completing your tax return
*Commission on interest or dividend income (not bank fees)
*Interest on money borrowed to buy shares or to invest, as long as the investment will produce some income that is TAXABLE
Premiums on loss of earnings insurance, provided that the benefit for the insurance policy is TAXABLE INCOME”
In terms of filing an IR3 on the basis of shares alone, you only do that (& must do it) where you have been taxed incorrectly (that is, too little) or have excess imputation credits brought forward from a previous year, have received overseas interest. In terms of voluntary, you may file an IR3 where you have chosen “to include dividends received from a portfolio investment entity listed on the New Zealand Stock exchange, in order to claim imputation credits”.
Most people who only have a “small parcel of shares” don’t bother with the hassle of filing an IR3 or paying the accountant to do it for them.
Right this is starting to bring back bad memories….! Back to the issue.
And please don’t say your PTS is correct then send in a IR3 as this only holds everything in the system up. The computer reads it as an error as it reads two returns for one year, it goes to the processing centre where someone has to sort them manually, they see if there is any differences and delete one from the system. Then people (you) get annoyed that its taking too long for their refund to come through.
@Rebecca
I think you’ve ended up agreeing with me without realising it.
No I don’t rely on a PTS as it is invariably wrong after all the above book-keeping. I do file IR3’s. I have an accountant prepare them, and I most certainly do not instruct him (not that he would listen to me) to do anything naughty. I provide him the info of the income and expenses from the various sources and he applies whatever can be according to the law.
I am not in the ‘business’ of renting houses as my primary source of income is my day job. I do tenant selection and look after maintenance by calling tradesmen cause that’s part of running a rental. But they are there to generate income. I am a net payer of tax (over and above my PAYE) most years.
Mine isn’t a small parcel of shares. Well it might be to some but not to others! I’m 47, been working all my life and due to being the son of immigrants who arrived in NZ in 1952 with nothing but a suitcase of clothes, I’ve been socking away everything I can any way I can. A redundancy in 1999 after 15 years with the same company helped there! One can accumulate quite a bit if one puts one’s mind to it. But I am not actively ‘trading’. I am not a day trader. Actually that’s all “was” cause I got sick of worrying about them and transferred the lot to the control of GMI to manage about a year ago.
If I were audited I would have no concerns as I expect everything the accountant has done to be kosher.
You’re probably right that a small shareholder’s ($10k or $20k?) expenses aren’t worth claiming and doing an IR3 for. But to never check your annual tax position (rely on a PTS)? Well more fool them. Have you not seen the ads from Trev’s mate Matt McCarten that say IRD has $700 million of unclaimed money to refund…?
rouppe. Good point, perhaps haing a shortage, housing corp (do they still exist) ought to be given more of a chunk of WFF and buy long term rental agreements from landlords like yourself. You get a secure long term rental arrangement, which suits your purposes. HC guarantees your rent, no downtime, no maintenance. Change the HC threshold, if necessary, to include a braoder portion of the community.
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…
Roupee regarding this I ask what ios the function of depr? To account for the reduction in value of an asset over time. As residential Building appreciate the need for any depreciation at all is questionable. But from this post is an informal subsidy paid to the land owner by the state.
As the asset “wears away” there is the ability to expense maintenance in the year that it occurs placing the asset back in a functional state. What happens if that expenditure adds vale to the asset. e.g. A new Kitchen costs $10k yet increases the value by say $20k. As I understand the land owner gets the tax benefit of this expense in the current year, Yet is able to pocket the increase in value without paying tax. For Land improvements e.g. carpark the initial investment is not depreciated BUT all maintenace on the car park is expensed when it occurs.
I agree that my post regarding LAQCs and iimplying that it has an ability to reduce income for WFF was wrong.
there are plenty of examples whereby the state allows for tax minimising regarding rentals that would be easy fruit to pick. BUT up until now no one has had the guts to mildly change anything until now. For me what has been tralked about does not go far enough, but at least there is something happening.
Rouppe although we have deviated slightly from the original topic I just want to emphasize these 2 points – yes it sounds like we are saying the same thing but perhaps just coming at it from different angles (you as someone who owns rentals etc and me as someone who used to police them):
1) If you are not a shareholder that HAS to file an IR3 or chooses to file as you intend to make a quick buck on your shares, then you can’t possibly claim something like a brokerage fee – this fee/these kind of expenses pertains only to those shares where you intend to derive a taxable income from those shares. That’s the rules. This is irrespective of whether you are filing an IR3 or a PTS. It is not an allowable expense unless you are in fact in the business of buying & selling shares or as you say a “daytime trader”.
Further, if you are taxed incorrectly and are a PTS filer then this should be assessed & corrected automatically at the end of year square up.
2) Where people like yourself whose primary source of income is their salary, are able to own a rental property or even multiple properties you are able to treat it exactly as if it were a business yet come the sale, you do not have to pay tax on any gain (but you do of course have to pay back any depreciation claimed) because it was an investment property rather than a business.
This is my opinion is grossly unjust on so many levels: every single person who buys an investment property intends to make a substantial gain whether that be so they can invest in another property with less borrowing or whether it is to gain a good nest egg for retirement. You said yourself, everything you are doing that pertains to your rentals is to “generate income”.
The big time property investors are not the issue as they are generally covered under the Companies Act. It is the “mum & dad investors” that are the bane of the property market.
All rental properties should, in my view, be defined under the Tax Administration Act as a ‘business’ activity. The fact that they are not is the tax version of having your cake & eating it. How is it possibly fair that you get to claim a loss from your rental for x amount of years & pay less income tax accordingly and then not have any gain from the sale treated as taxable income?
It is this that I want to see changed as it is this that has been, in my view, the primary catalyst for the overinflated house prices we have seen in recent years which have driven & kept first home buyers out of the market.
I don’t begrudge you working hard to get yourself ahead & making the most of the current rules however, it is in my view, absolutely criminal that a family on $70-80 would not be able to afford the average house in NZ or for that matter, even a dive in Cannons Creek (state housing area of Wellington). Unless of course they managed to save about $100k as a deposit!!!!
A big overhaul of the tax system would go some way to helping such families.
I want Labour to tell me how they are going to do this. I want Labour to tell me how it is fair that a young family needs to earn about $90k per annum in order to buy an average 3 bedroom house of about $350k on the outskirts of a main centre and fund a mortgage of say $300k all the while paying 30% tax on almost 2/3 of their income.
This is the primary reason why I bother contributing to this site as it is this issue where I feel Labour has the most explaining to do….and that’s without going into the 100% increases in ACC levies they approved in 2007! :p
Reb- I hope more than Trev from within the LAb party is reading this. On front Benches are couple of weeks ago the Lab MP rep there stated that there was nothing wrong twith the tax system, and all this was re GSt and PAYE was wealth distribution to to rich. How wrong members of this party are… The TAx system is a wreck esp for those who have the nouse or wealth to afford to “manage” the system
I getthe feeling that Lab will only listen to the converted and will not constructively listen to many who can see issues that DO NEED addressing. As Trev commented earlier on for me to wait until next year. Sorry Trev this issue should not be part of playing politics. It is about helping to creat a Great Society that those who can do asist those in need thru Govt interaction.
But I am afraid that ideology has blocked the ears of Labour.
Rebecca and Herodotus – I agree the tax system is a mess, and some party at some point has got to take a deep breath and do something courageous. The system here IS broken, and frankly I can’t see anyone doing something courageous making it worse.
We have to stop being followers, and cherry pick more. Look at others, and other ways, look at our own circumstances and environment (I dont mean trees) and innovate toward a balanced way that will grow, will help those in need and reward those who are productive.
Even IMF is now saying there are flaws. We need to leae our current economists doing the mundane stuff and start embracing innovative thinkers in this area (and I dont mean Roger Douglas and Don Barsh).
Perhaps we could have a blinking cross-party effort, although that was attempted with Superannuation… Someone have the testicles to say this is bigger than politics and bigger than our egoes and bigger than me getting re-elected. I don’t care who is in Governmnet if “we” can make this huge change, the future will judge it/us
Herodotus “But I am afraid that ideology has blocked the ears of Labour.” – I could not agree with you more. And the same applies to the very faithful (albeit now few in numbers) Labour supporters.
Labour has to start recognising that times have changed and that the tax system including personal rates AND the rules around companies, trusts and rental properties needs to be overhauled. I hope they read what those of us who are fence sitters or even on the right are saying as like I have said before, unless Labour comes out with something of real substance then I will happily continue to take whatever crumbs National throws me.
Tracey I agree – perhaps it is just the idealist in me, but where things like education, tax, health, environment etc are concerned, policies in these areas go well beyond the term of those in government & I just can’t see why they can’t all negotiate together. But being in opposition is exactly that, it is the nature of our political system. Politics always seems to override the issue and in many ways, the future wellbeing of our society and our children. The recent RA blog on sterilization being a prime example. This means that Labour is unlikely to accept the view that the tax system needs an overhaul precisely because that would mean agreeing with National.
No, Labour disagrees with National because of the direction that National’s policies take the country, and not for the sake of it. The parties are not similar.
Spud – there are some issues that I cannot see Nat=Lab in regarding some tax issues. Agree on what you can agree, as NAt is govt let them do what they see and Lab donot, then when (If) Lab get in office agian to do their bit. It is like a boat race, we tack to the left then to the right BUT there is forward progression to the finish line. With this WW1 attitude of trench warfare we make no progress. I will leave the Greens out as I have NO faith in their financial management of the country (They do have their place BUT not in treasury)
Sure let the government govern and let the opposition oppose!
Part of being in government is taking the criticism from the public and the opposing parties!
Labour are doing their job and I’m glad that they are there holding the government to account.
The adverserial system has its failings both in court and in parliament. I suspect that the first Opposition party to agree to genuinely work cooperatively with the other in tax overhaul will garner greater political kudos/benefit than the Governemnt party. Just an opinion.
What would you replace the adverserial court system with?
Tracey, Spud, Rebecca and Herodotus There have been two attempts in recent years to get bipartisan agreement in this pretty narrow area of tax policy. The first was in late 2007 or early 2008 and involved Key, English, Cullen and myself. There was a clear willingness on Key’s part to progress the issue and to deal with the ringfencing and depreciation issues. English was not as keen, the Nats reserved their position at the end of the meeting and made it clear a couple of days later that they weren’t prepared to progress a bipatisan approach.
The second attempt was an offer on Phil Goff’s part last year to resume such discussions – rejected by English – I think he called Labour irrelevant.
Pity because it is useful to have at least some areas of agreement and long term stability in tax policy.
Sorry that was off topic, I’m just curious
Your job sounds very cool. 
Labour has tried to work with the government in the past – ETS is one example. And Labour gives credit where credit is due if they agree with what the government is doing. If they don’t agree then it’s nice to hear opposing argument as to why not.
Spud – So you are happy with the tax system. If so then like Lab by association you are happy for the status quo and all those that either avoided tax or the loopholes allowed within the system is OK. So screw the PAYE worker!!
Just writing to see if I’m actually in m oderation or whether it’s just a glitch.
@ Herodotus – No, I’m not happy with the tax system.
Though it’s not of huge worry to me the way that it is.
Spub, it isn’t an either or option. I just don’t get why in the 21st Century so many still cling to the notion that everything has to be one thing or the other. The inquisitorial system (legal has many upsides). BUT this is off thread. The biggest danger/problemw ith adversarial is entrenchment of position. It’s a pre-requisite.
Trevor, thanks for the clarification.
Hi Tracey – “Spub, it isn’t an either or option.” Have commented on that (11.17) – but the comment is held in m oderation for some strange reason.
Thanks I’ll look up the inquisitorial system.
p.s. I like the way you’ve changed my name to include the word pub!
No worries, there are other ways, but all systems are only as good as the intent held by those operating/shaping it.
Herodotus “screw the PAYE worker!!” – actually, self employed people are being screwed more. Take ACC – off thread Trevor
@Trevor; interesting re English and now that you mention it, I think I remember reading something about it. Doesn’t surprise me as he is certainly very right of centre right! And yes, I remember Phil Goff offering his services last year.
But even if they are not prepared to negotiate with you or vice versa, you could still use us, the voters to lobby for some kind of compromise. I don’t see why rejection to work with the other party has to mean that you go back to what Herodotus calls “trench warfare”. If you were prepared to negotiate then that means you must have been prepared to compromise yet that is not the message you (Labour) are conveying now.
National don’t want to be a one term party and I think that Labour’s responses by and large so far are ensuring that they won’t be. For me my lines in the sand are child abuse, tax (both personal & general overhaul of the system esp where the ‘real’ rich & rentals are concerned) & ACC. They are what I base my vote on as in terms of healthcare we are privately insured and as for education – well, I am not sure. Currently I think National will deliver on ‘our’ issues better where we personally are concerned. However, I don’t like the fact that this may come at the expense of our national parks…..!
ACC is off thread Trevor
I don’t think it’s trench warfare to be campaigning on something that is so close to the party’s values. I was proud of the Axe The Tax tour and it was the right thing to do.
Now had they compromised on that it would’ve p****d off the public and done nothing for the party’s image.
ACC is off thread Trevor
Spud – IF the tax system could be overhauled to make it balanced and fairer to all, including the lowest paid amongst us, wouldnt that be close to Labour Party values??
Indeed, The many not the few
Spud it was a throw away comment as it’s off topic: the monkeys that I’m referring to are exactly that, they don’t have the smarts to contract themselves to the company as they would not generate the same turnover (& the company wouldn’t let them) so they are company employees. They are still doing the same kind of work, but are PAYE. They have the bulk of the accidents yet are in no way paying their fair share of ACC. So this means self-employed people like us, who are paying $1.47 more per $100 of income earned that the PAYE earners are actually subsidizing them. This is where it ACC is clearly broken & grossly unfair. I’m all for opening the workers account to competition. But that’s another discussion.
Tracey yes I agree -Labour is loosely based on the principles of socialism which obviously has its derivatives from Marxism.
A tax system that is more balanced and therefore genuinely fairer to the “many and not just the few” would be closer to Labour’s ideology.
I knew it was a throw away comment.
A fairer tax system means different things to different people. To me it means that if you earn 4 times as much you pay 4 times as much tax
PAYE worker earning $25000 pays $4,370 tax.
PAYE worker earning $100000 pays $29,540. That is nearly 7 times the tax for 4 times the earnings. This is likely to drive behaviours that try and minimise tax paid.
In reality the person earning $100,000 will contribute more tax in more ways than the person earning $25,000. That will be via higher consumption, earnings on investments, that sort of thing.
Unfortunately there is a political tendency or incite negativity toward the higher earner and demand proportionally more (i.e. 7 times instead of 4 times) from the higher earner “because they can afford it”. Believe it or not the natural response to being spat on is not to turn the other cheek.
I’m getting the sense that those saying “fairer to the many not the few” oppose a drop in the top tax rate because they see it as benefiting the few. Trouble is, no-one says anything when tax rates rise for those same people. The inference to draw from that is that it’s OK for negative things to happen to people on higher income bands, but not OK for positive things.
Well, take a close look at what that says about you as a people. Higher skilled people are already leaving in droves to live elsewhere. Keep on being as unpleasant as you can, and before you know it there won’t be anyone in your target group anymore. You’ll be like looters who think someone will restock the supermarket shelves.
Beautifully said Rouppe!
Not me rouppe, I am looking for a systemof taxation that is fair, sadly, it has to be perceievd as fair and that is where issues arise.
It MUST exist, and it may be hard to cobble together but we need it. Partisan stuff only polarises. Entrenched psoitions are hard to move (oviously). I am not in the lower paid (although was in a household with a person redundant and unable to find work for ayear recently) and recognise that is important for the weaker to be supported. If people want to be self interested, then it doesnt pay to have weak links wandering about finding theirown desperate way out of their situation (cue helath, crime, education problems etc).
As an addendum rouppe, lower skilled are leaving in droves too, not that many worry about that or highlight it. It’s those who mainly head for Australia because their lack of skill is better rewarded. It isn’t all “brain drain”, in fact those who leave amongst brain drainers are most likely to return. Most doctors who leae are NOT going because of money. MA recent survey confirmed it was nothing to do with money or taxes.
I am not anti wealth, far from it. It ill behooves anyof us to label each other so generally. I’m an ecclective mix of ideas and beliefs.
Tracey
Yes ’tis true, fair call. Getting sent to the mines used the be a punishment! Funny how things change…
However I must confess I don’t know the best solution. The government has to have money to do its job. It has to collect it somewhere. The largest drivers to my objections to how Labour did it are:
1) Wastage. I really think at least part of WFF and interest free student loans is wasted unnecessarily. Don’t even get me started on the rampant rise of employees on the public purse.
2) Skew. The last 10 years saw quite a skew I think. Easy to do politically when the majority will benefit from the skew against the few.
3) Lack of planning. Big ticket items were signed up to with no exit strategy. Cullen Fund had to have contributions stopped because there was no way out of WFF and IFSL once JK painted himself into the corner.
I like WFF, interest free student loans and The Cullen fund
Good on ya Labour! 
High income earners will benefit the most from income tax cuts and the proposed GST increase. This is because high income earners pay more tax, both in absolute terms and as a percentage of their income (they earn more and spend more). Our estimates by broad income groups suggest the tax burden (income tax and GST) will remain broadly unchanged:
• Top 20% income households will continue to pay around 46% of all income tax and GST.
• Top 50% income households will continue to pay around 80% of all income tax and GST.
• Bottom 30% income households will continue to pay around 8% of all income tax and GST.
• Higher income earners are likely to spend some of their windfall gains on consumption, which will attract GST, and they may pay more tax than now.
NZIER