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Misleading talk will lead to bad tax decisions

Wednesday 20th of January 2010

NZPIF says deputy commissioner of Inland Revenue Robin Oliver confirmed back in 2007 that rental property does not have a tax advantage over other investments or businesses.  

When asked by a government select committee if there were some tax advantages for investments in rental housing, Oliver replied that "the short answer is there is none".

"Rules about expenses for deducting costs such as interest, upkeep and maintenance, as well as paying tax on income were the same for investments in shares or anything else. In fact under the housing case, the capital gains boundary is brought back a bit. There are tighter rules to what is a capital gain."

Many businesses make a loss during the first few years while getting established and rental property is no different. The rental market is extremely competitive and tenants enjoy lower rents because of this, helping them to save for a deposit on their own home.

The NZPIF is also concerned about the belief that rental property owners actually reduce the level of tax available to the government by $150m has been repeated so often that it is now thought of as a fact.

"The often quoted figure is an anomaly that occurred in 2008 when interest rates were at their peak, making it extremely difficult to provide rental property. However with lower interest rates rental property will once again return to be a net payer of tax. To suggest that rental property owners are not paying their way based on one very difficult year is grossly misleading," NZPIF said in a statement.

Another point often raised by rental property opponents, is that the rental industry is not part of the productive sector. This shows little understanding of what it takes to make a country productive.

Rental property owners house around a third of New Zealand's workers. Without access to decent housing, these workers would be considerably less productive.

Rental property owners also contribute to the general economy through supporting banks, local councils, tradespeople, professionals, hardware stores, insurance companies and a host of other businesses.

"Any tax applied solely to rental property would not level the playing field, it would distort it," NZPIF said.

"Rental property does contribute to the tax system and it is definitely part of the productive sector. To suggest otherwise is completely misleading."

Comments (1)
Paul M Reynolds
Every taxpayer has the right to tax minimisation by arranging their financial affairs in the most tax efficient way allowed by legislation. This concept should not be confused with tax avoidance, which is illegal. Every investor, whether in residential property, or as a business owner-oeprator or shareholder requires a return on their capital. Without a Return on Capital Employed, there would be no incentive to invest. Most "family owned" investor capital has been generated in the first instance through accumulating a lifetimes tax paid income. So proposals to apply "wealth" taxes to income on which tax has already been paid are plainly unjust and inequitable. Some investors aim to increase their retun on capital by leveraged borrowing...the extent to which leverage is taken on is determined by the investors capacity for risk. Investment rental propeties are not all highly leveraged and not all alternative investments are profitable. Ask those who invested in 2006 "for the long term" in the so called diversified risk local & global share funds or directly in equities the loss they have sustained. Most property owners have faced declining values in recent years over the term of their investment, as have owners of shares, many financial bonds, and thousands of small business owners whose business have lost value and are unable to sell. Bottom line, taxation of capital gain is already a reality of property (& share) traders. We don't see anywhere in the debate, taxation relief proposals for loss of investment capital do we? Ability to claim relevant expenses against income isn't uniqie to rental property investment. Every business incurs expenses to some degree in generating income and these are legitimately deductible. Proposals to legislate against claiming depreciation & income related expenses on rental property income is plainly inequitable as rental property is a business like any other and business generally accesses these allowable expenses. Whether as a sole trader or company, rental property owners are in the business of applying capital to providing medium to long term housing & accommodation to customers (tenants). The implication in the tax reform proposals and popular media that rental property operators have a less than worthy enterprise that must be selectively taxed is abhorrent. All business exists to make a profit and the marketplace determines it's success or failure. There is nothing unproductive about property investment relative to other business classes. People want to be housed, the sector meets a segment of this need, the market, location, specification & condition of the property sets the rental and return. Same as any other product or service in the marketplace. The sector generates significant work for trades & professional services & goods. There is no justification for selective taxation of rental property investment.
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14 years ago
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