Residential property investors to get another bite at fit-out cherry

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Residential property investors will get another chance to claim depreciation on fit-out and maintenance costs with Inland Revenue reviewing these costs after the government followed through with its threat to remove property owners’ ability to claw back depreciation on buildings.

Friday, May 21st 2010, 12:00AM 2 Comments

by Paul McBeth

New Zealand Property Investors’ Federation vice-president Andrew King says residential investors had already had their ability to claim depreciation on fit-outs, and the upcoming review would give them “a second bite at the cherry.” He said the government’s tax treatment of property was not as draconian as it could have been with the removal of depreciation across the board, rather than just targeting residential investors.

“We were concerned that people in the financial industry and some commentators were putting pressure on the government into discriminatory tax increases for rental properties, and we’re glad that they’ve seen through that,” King told landlords.co.nz. “We’re still not happy about depreciation, as that’s still available to other businesses,” though commercial investors will bear the brunt of the added costs, he said.

King said he was pleased property investors will still be able to claim depreciation on chattels, and this will damp the added burden on investors. The NZPIF had calculated the removal of depreciation claims would add about $35 dollars a week per rental property, but the exclusion of chattels would only keep this at around $15 to $20 a week, he said.

The Treasury estimates the increased burden of depreciation will boost rents by about 1.4% over the next one to three years, though the Real Estate Institute doubts there will be a significant long-term impact on house prices or rents.

REINZ President Peter McDonald said the government had already signalled its intentions, and those property investors concerned about the loss of tax breaks had already left the market.

“A more significant reason why people invest in residential rental property is the security compared with other investments, so while tax considerations are part of the equation, like it is with all investments, it is not normally a deal breaker,” he said. “Now that the details of the promised tax changes are known, other property investors will replace those who were primarily attracted by the tax breaks.”

Paul is a staff writer for Good Returns based in Wellington.

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