La-la landlord policies

 

I know I keep banging on about rental property, but the actions of both the current and the previous governments just make no sense. Both were so focused on the profits that property investors might be making that they really could not see the damage they were doing to the rental market. This is particularly true of the current government. At a time of severe housing shortage they are doing everything they can to drive people away from being landlords. And they seem to think that it doesn’t matter how much they kick landlords, they will just keep coming back for more.

They won’t.

This from Stuff: Quote:

This week we sold our rental property.  It was something of an emotional event, as it had been my first home, then our first home until our little family outgrew it.

It’s a fairly humble home in a humble area, but it’s saved by its location, a jaw-dropping view of the sea. I fell in love with it on the spot.

Rather than sell it, we did what lots of Kiwis do – suck out some equity to buy a new home and rent the old one out. End of quote.

So, you are a fat-cat landlord and you are even apologising for it. Pathetic. Quote:

Of course, we’ll get some payback in terms of capital gain so again, no sympathy sought.

But it does bug me that running a rental is still not really viewed as a business, especially as the tax laws tighten.

Chris Leatham, a tax expert with PwC, agrees with me that technically, rental property should be treated like any other business.

In any other business, you can also claim things like maintenance, losses and interest on your loan payments.

But it’s also true that the nature of property has given it a couple of big advantages that aren’t really related to tax at all.

For one, banks will lend a lot more on a property than they will for other forms of business. End of quote.

Landlords can claim deductions for maintenance (so long as it is not capital in nature) and loan interest. As for banks, they lend according to risk. Property is lower risk than most other assets so they lend more on property than on anything else. Quote:

But in the meantime, successive governments have skewed the playing field against property, arguing that too much has gone into housing when it could go into more “productive” parts of the economy.

The ability to claim depreciation has gone, even though buildings do lose value (it’s the land value that rises).

Proposed ringfencing rules will nix the ability for landlords to offset their rental losses against other income. End of quote.

Yes, this is a mean trick; this is designed to penalise landlords even more. If a landlord makes a loss on his rental income, he cannot offset this against his other income. Once again, landlords are being singled out for punitive actions that do not apply to other businesses. It hasn’t actually happened yet, but there is an even meaner proposal. If you own a property by way of a company and that company has other business activities, it is proposed that rental losses will not be available to be offset against the other activities of the company. Once again, landlords are being thrashed by stupid government (and IRD) policy that does not apply to any other type of business.

Why on Earth would you want to be a landlord? Quote:

Upping the “brightline test” to five years, officially an income tax, is considered by many to be a capital gains tax by another name.

From a tax purists’ point of view, Leatham finds these penalties “unprincipled”.  He’d rather the Government just bring in a full capital gains tax and be done with it. End of quote.

And so would I, but only so long as all the anomalies disappear. The fair dividend rate (a total misnomer, as it is a tax on unrealised gains), the bright-line test, the associated person rules, and so on. Quote:

But if the tax does come in, fairness dictates that property should not be the only form of wealth that’s targeted. End of quote.

Herein lies the problem. Governments and people like Gareth Morgan want investors to invest in ‘productive assets’ like shares. But, for a capital gains tax to be fair, shares have to be targeted as well. And that will discourage people from investing. Quote:

In the meantime, we have to ask what effects these measures will have on our critically short rental market.

If we penalise landlords too heavily, will they go away? It’s hard to imagine that Kiwis will easily give up their addiction to property. End of quote.

No, it isn’t. Landlords are selling up in droves. Kiwis may love property but they do not like being beaten about the head because of their investments. This is going to bite the government in the backside very hard. They have no one to blame but themselves.

 


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Accountant. Boring. Loves tax. Needs to get out more. Loves the environment, but hates the Greens. Has been called a dinosaur. Wears it with pride.

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