Tax plans hit property investors
Labour has unveiled its tax plans, including a capital gains tax and they look worse for property investors than originally thought.
Thursday, July 14th 2011, 12:00AM 
6 Comments
by The Landlord
Labour has unveiled its tax plans, including a capital gains tax and they look worse for property investors than originally thought.
Labour leader Phil Goff announced the plans in Wellington this afternoon. He confirmed that capital gains tax (CGT) but also said it will ring fence property tax loses so that they can not be written off against future property income, but not against other earnings.
The key points in its tax plan are:
· A 15% tax on capital gains
· Increase the top tax rate for people earning more than $150,000 to 39%
· Ringing fencing loses on
· Remove GST on fresh fruit and vegetables
· Make the first $5,000 of income for everyone tax-free
· Bringing agriculture into the ETS two years earlier than presently planned
· Introduction of R&D tax credits.
Labour has put up its plan as an alternative to sales of state assets. It says the policy has been fully costed by BERL and it estimates it will raise $78 million in the first year, rising to the $2.27 billion in year 10. Over 15 years it will raise about $26 billion in total.
Goff says under the plan it will repay government debt as quickly and at the same level as what National is proposing.
The capital gains tax will be reasonably comprehensive covering, property, shares, farms and business investments.
However the family home will be exempt. Real estate, land and buildings in the Canterbury CERA area will be exempt for five years.
Finance spokesman David Cunliffe says the ring fencing policy was announced earlier this year. Treasury estimates have it generating $3.2 billion in the n years up to 2024/25.
He repeated the Tax Working Group said there was $200 billion invested in property, but property investors holding these properties reported net losses of $500 million.
“That’s right property investor declared a net loss on $200 billion of investments.”
Cunliffe says a CGT is fair as at present the major tax burden falls on individuals through wages and salaries and capital gains are not taxed.
“Huge sums of money can and have been made, but the fortunate recipient pays no tax.”
He also said that an expert panel will be put together to address other aspects of tax avoidance including a review of the taxation on trusts.
Labour says nearly every country in the developed world has a CGT. New Zealand can learn from these and implement a “best practice regime” which is low on compliance.
Goff rejected the argument
Cunnliffe says the new tax rate for people earning more than $150,000 is lower than Australian rates.
Given the current economic circumstances and the Canterbury earthquakes New Zealand cannot afford all of the windfall gains that top income earner have received in recent years.
“We need to ask the highest income earners to pay a little ore income tax to help out.”
He describes the changes which include making the first $5,000 of income tax free as necessary rebalancing of the tax system.
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Comments from our readers
Why should we provide a social service to tenants/WINZ and then put up with the crap system to get rent/damages owed by tenants repaid.
Where the tenant is a "client" of WINZ then WINZ should be made to pay in full to Landlord and reclaim off tenants benefits at $10/wk!
Rents will go up even more to cover owners potential liabilities.
Crunch is that you have to win first Mr.Goff!!
The problem is, I very much doubt that the majority of ‘Mum and Dad’ part time property investors in New Zealand would actually invest that same sort of money into any form of business anyway. The banks certainly wouldn’t lend to them to the same degree if it was to be invested into business, unless it was backed up by some kind of secure assets, hmmm…. like real estate. New Businesses are generally very risky investments, with the majority of startup business ventures, not lasting the first 12 months, banks certainly know this.
So this theory of getting us all too alternatively invest in business is extremely flawed, and IMO is just not going to happen like the powers to be would like to think.
As private landlords, we may not directly employ staff, but indirectly we employ a large number of people across various types of businesses. Property management companies, a raft of different tradesman for repairs and maintenance and Accountants to name just a few, many of these businesses owe their mere existence to the private residential property investors. So you cannot tell me we don’t do anything for the greater NZ economy!
Property Investment has always been popular for those hard working Kiwis who want to get ahead in life. As it is a form of Investment that firstly can be easily understood (compared to other investment vehicles) and can also be employed alongside normal full time employment. Private landlords also play a very important role in providing homes for those less fortunate New Zealanders that are unable to own their own homes.
The Government via Housing NZ currently only supplies approximately 5% of all the rental accommodation in NZ, and IMO do a fairly poor job of that, compared to the private sector. The fact is that the harder the Govt make it for the private property investor/landlord, the more and more the Govt are going to have to take up the position of providing a far greater proportion of NZ’s rental housing, and at what cost I ask??
It is extremely likely that the cost of this to the Govt/tax payer will far exceed any actual gain in revenue generated from the introduction of a CGT and further ring fencing losses anyway. But I highly doubt that Goff and his short sighted cronies have thought that far ahead.
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