Two tax changes property investors could live with
Saturday, February 20th 2010, 10:55AM 
2 Comments
Property investors have been inundated with reactionary views on what the government plans to do to them through the tax system.
Now a bit of time has passed since Prime Minister John Key outlined the government’s plans to Parliament it’s worth reflecting on what might happen.
The first point is don’t be lulled into a false sense of security. Key dismissed some of the most distasteful ideas such as “comprehensive” capital gains tax, a land tax and a risk free rate of return method of taxing property.
You could almost hear the sighs of relief from investors.
What hasn’t been said though is what the government will do.
It’s pretty clear residential property investment has been singled out as the great evil which needs to be dealt to.
Apparently we all rort the system, pay no tax and are generally bludgers. What bunkum.
My views on this have been spelt out many times – the underlying premise being investors are business owners providing a service. They should be treated just the same as any other business owner and be subject to the same tax rules.
What’s on the cards?
Changes to depreciation for one. Property investors can live with that. After all it’s really just a timing issue and brings forward some revenue for the Crown.
What I wonder is this: Why the government should make a whole set of new tax rules?
It seems to me that Inland Revenue has had quite some success with its so-called Property Compliance Programme. Under the PCP it has been chasing investors who clearly have been buying properties and flicking them on for a profit.
So far they the programme has raised more than $214 million.
This is just the low-hanging fruit. Surely one option is to clarify the rules here and continue to enforce them.
Clarifying and enforcing these rules is something investors could live with too.
If the speculators’ activities could be curbed that would undoubtedly take some of the pressure off house prices. Particularly for those in lower price brackets.
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Comments from our readers
On 1 March 2010 at 5:56 pm Eddie said:
Dear Mr Bloggs,
You need to realise that with a basket case sharemarket and managed funds industry that bricks and mortar is a good investment choice and helps fulfill vital social needs for our country.
Interestingly only 2 out of the past 28 income years has property investment made a net loss for the Government. The Tax Working Group didn't want that statistic published.
Now I agree that many investors have bought property with an intention of resale, so they make gains on revenue account - not capital account, yet they get away with paying no tax. We NEED a legislative change to draw a line in the sand and perhaps have a clear law that investment properties purchased and sold within a period of time (eg. 2 years) are to be held on revenue account so tax is payable on any profit, and conversely losses are deductible on any losses made. With 2008 and 2009 not being the most "vintage" years for investors - there will need to be many refunds.
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Yes, that is an option. Unfortunately, the issue facing New Zealanders is that our tax system is unsustainable. It has been subjected to many ad hoc changes and policies, such as the above suggestion. What you propose would probably only put a band-aid on an open wound.
There is a large gap in the way property is taxed in NZ and a large tax burden is being placed on the few who are those most mobile - labour and corporates.
Things have to change and property investment rules will be one of those things.