Wednesday 20th of January 2010

Residential property investors have been a political target for some time now and today’s report from the Tax Working Group (TWG) made it clear they, unfairly, remain in the sights.

The TWG has put the acid on the government throughout the report and raised ideas which will be clearly more than the government can stomach.

The question that I struggle with is how far would a National-led government be prepared to go and clobber the property investment sector?

There is little doubt in my mind that the vast majority of property investors would vote National or some other party on the right of the political spectrum. To penalise several hundred thousand of its core supporters is the equivalent of political suicide.

National has plenty of political capital to burn, but moves such as the TWG have proposed are like lighting a bonfire.

I suspect there is some “low-hanging” fruit the government can pick. For instance the land tax idea is something that wouldn’t be too hard to do, and could raise a reasonable sum of money.

I am told there used to be a land tax (apparently it was a pink form filled out each year which had to be filed by the end of May).

Likewise changes to depreciation are possible. There is an argument which suggests depreciation isn’t really justified when the asset is generally appreciating. There maybe some instances, such as leaky buildings, where there is a genuine reason for depreciation, and the rules could be made to accommodate this.

Also an increase in GST would mean that property investors paid more tax.

One thing which was good to see is that the TWG didn’t get stuck into the argument about loss attributing qualifying companies. Many commentators have described this as a rort that property investors shamelessly exploit.

I have always had trouble with these arguments. The view being that property investors are in business providing a service (accommodation) to customers. They should be allowed to operate under the same rules as any other business. LAQC’s are legitimate structures for them to use.

This was summed up by the Institute of Chartered Accountants tax director, Craig Macalister, at www.netprophet.co.nz when he queried whether the current "emotion" around property investment was getting out of hand.

"We need to be careful not to fall into the trap of selected taxes for different assets or investments for all the reasons why these were a failure in the past," he said.