David Whitburn

I was listening to the country’s leading radio station (NewstalkZB streaming live) on my computer now and I heard the Minister of Finance Bill English talk about tax reform with host Larry Williams.  English said that the tax regime has a more favourable impact on property investors.  As a result he foreshadowed the May 20th budget speech, by stating that he would make property investment less attractive.   English stated that there will “be more than one change”, so we investors can expect depreciation alone will not be tinkered with.  This is to ensure that there aren’t enormous benefits to having “highly leveraged property speculation”.

English went further to say just now that anyone who owns a property will still be able to deduct the repairs and maintenance expenditure, however my interpretation of the Minister’s statement is that depreciation on building structure will be 0% (and not the 1% I had previously anticipated).  This is to ensure that there is a tilt in the playing field towards business owners, job creators, and other productive investments.

If there is to be more than one change – then what else?

It looks like the writing is on the wall and that our depreciation on building structure will be lost.  However English said just 5 minutes ago (6:20pm 21/4/2010 Newstalk ZB interview) that there will be more than one change.

Could this be highly geared investors worst nightmare of (1) ring-fencing property losses; where properties that make losses are not able to be offset against personally derived income (ie. they are ring fenced until the property becomes profitable).  Otherwise could we see (2) thin capping interest deductibility; where interest on servicing a loan will only be able to be deducted if the investor has a loan to value ratio of say 65% of lower, or will it be something else?

Perhaps there will be a real (3) tightening of the revenue account rules to catch all investors who buy a property and sell it within a period of time (say 5 years) for a profit, so this gain would be brought into the income tax net (‘brightline’ test).  Previously this gain would in the vast majority of cases be capital and therefore not taxed.

Quick Thought – Interesting Blog on Interest.co.nz:

We eagerly await these changes.  In the meantime, have a look at Gareth Kiernan’s (from Infometrics) latest blog on www.Interest.co.nz as it makes interesting reading.  He says property investors have vested interests and makes accusations against internet marketer and self-proclaimed property investment guru Dean Letfus:

http://www.interest.co.nz/ratesblog/index.php/2010/04/20/opinion-property-investors-cant-get-past-their-own-vested-interest/

The comments are quite interesting, particularly from my friend and passionate property investor Andrew King (NZPIF Vice President).

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