Archive for July, 2011
I have had a few questions lately about the difference between LIMs (Land Information Memorandum) and PIMs (Project Information Memorandum). There is no point in re-inventing the wheel, so take a look at this website for a great table that state what they are: http://www.consumerbuild.org.nz/publish/legal/legal-other-pimspims.php
PIMs
These are specific to a certain proposed construction building, pursuant to the Building Act 2004. A Project Information Memorandum is a request for the council to provide information on a proposed construction project that may have an impact on the proposal, eg. drainage location and geo-technical information. You can apply for a building consent without applying for a PIM in certain circumstances, and then your consent is treated as if you were applying for a PIM as well. Otherwise you can apply for a PIM at the preliminary design stage of the project.
LIMs
A Land Information Memorandum is a comprehensive report containing all relevant information that a council or territorial authority knows about a property or section. They can’t tell you what they don’t know about, so if you see a double garage on the property and nothing in the LIM about this, you may well have an issue to talk to your lawyer or conveyancer about! Councils will charge a fee and take up to 10 workings days to send you this information – e.g. a LIM report from Wellington City Council (within 10 working days) currently costs $306.50 including GST for a residential property, and $715.50 including GST for a commercial property.
I am going to New Plymouth shortly to speak to the Taranaki Property Investors’ Association tonight. I will be discussing the Labour party’s tax proposals, particularly their attempt at political suicide with the introduction of a CGT, as well as what I am investing in currently and my take on the New Zealand market and when the boom is likely to occur.
We have such a beautiful country and the Taranaki region is stunning. I only wish I had a bit more time to go skiing there!
Labour have slumped in the latest TVNZ Colmar Brunton poll to just 27% support, a ten year low and a fall of 7% since the previous poll. With their intentional leaks to the media, the introduction of a capital gains tax (“CGT”) was the biggest move. This has long been thought to be political suicide and I didn’t think a Labour party struggling in the polls around 20% below National would try to introduce it. They did and the voter backlash has been significant.
Labour Leadership Challenge Imminent?
Current Labour leader Phil Goff tried to brush it off saying “its too early” in the piece to introduce this. I think this could be the nail in the coffin for Phil Goff with a whipping only 4 months away. Some Labour party members think it is time for a new leader – someone hungry like Grant Robertson could put up his hand. I don’t think that David Cunliffe will want to go into this election as Labour leader as the result is looking most damaging. No matter what left wing journalists write those that oppose CGT, they cannot change the fact that Labour is going to be decimated in the elections. They are leaking votes to both the centre and the left (ie. Greens).
Most New Zealanders like being in a country where they can aspire to not be beneficiaries of the state, to be able to provide for their own retirements and not to be poor. So having policies that act as a punishment for individual success and asset ownership, is not wanted by the electorate. The true judgment day on this is Saturday 26 November 2011 in the NZ General Election. Sadly the result will be masked somewhat by the Mixed Member Proportional (MMP) voting system we have.
Source: One News - TVNZ / Colmar Brunton Poll, 29 May 2011
Labour are struggling in the polls and are staring down the barrel at a good old fashioned whipping on 26 November this year, similar to what they dished out to a Bill English led National Party in the 2002 General Election. So they need to be a bit more radical to appear relevant. The truth is National has moved further left to become a centre to centre-right party and Act to the right of the political spectrum to National have weakened with a bit of in fighting and are only rebuilding now. National can govern alone on current polling – a first in this MMP era.
This blog talks about Labour’s new policies and gives me take on them. I have been interviewed by the NZ Herald and also Radio Live on this today, and suspect with NZ Property Investors’ Federation President Andrew King away that I will get more media attention to cover off the all important property investors’ perspective.
Own Your Future – Labour’s New Financial Policies
So this is the backdrop to the Labour Party’s Own Your Future electioneering. They need to do something radical to appear relevant and to get noticed by the media. So this afternoon David Cunliffe stated the Labour Party’s financial policies in this video below:
Labour Leader Phil Goff said that the NZ Government is borrowing $16.7 billion this year on Campbell Live (TV3) this evening, and criticised National of simply borrowing and hoping. He then talked about Labour’s tax plans to raise Government income. Lets have a look at what they are:
- Increase tax on higher income earners – introducing a ‘special’ tax rate of 39% for those on incomes over $150,000
- Ensure the first $5,000 of earnings taxed at 0% (ie. tax free, and this includes increasing benefits by $10 a week)
- Introduce a Capital Gain Tax (“CGT”) of 15%
- Boats will be exempt from the CGT
- A farm house will be exempt CGT, but not the farm itself
- Jewellery will be exempt from CGT
- If you are over 55 years of age and have owned a small business for at least 15 years then the first $250,000 of capital gain is tax free
- Fresh fruit and vegetables will be exempt GST
My take
Read my lips – “no more new taxes”. We do not need capital gains tax. It is not aspirational, not necessary and surely the wrong question is being asked. I believe that the quality of one’s life is determined by the quality of the questions we ask. If we are asking how we (the Government) can afford to keep over-spending and borrowing $16,700,000,000 this year? Then the answer would be increase taxes and keep all state owned enterprises, if you were in the Labour party. Might as well bring in some refugees with no English language skills and poor health while we are there too!
Phil Goff confirmed to John Campbell that the own home is sacred and will not be taxed. This will lead to “castle building” since own homes will be sheltered from this tax, you may as well add tremendous value to it and get a larger capital gain.
Exemptions
Exemptions are not a smart feature of a tax system. If I invest in a start up company WXYZ Manufacturing Ltd with no capital initially, employ lots of unskilled people that would otherwise be dependent on the Government as beneficiaries and then sell it say 15 years later for $200,000, I would have to pay $30,000 CGT on this under Labour’s proposal. Yet if I buy my wife jewellery like an expensive diamond ring for $400,000 which I sell for $600,000 giving me a $200,000 profit, then I would not have an CGT to pay.
Does this exemption make sense or sound fair to you?
Defining the farm house as opposed to the farm itself is going to fun, particularly for tax accountants and lawyers. Boats being exempt CGT is interesting too – perhaps this is because too many boats depreciate in value, meaning refunding CGT. With beach houses and secondary homes subject to CGT, could we see a positive for the luxury boat industry if CGT comes in!
No GST on fresh fruit and veges is a strange exemption too. Australia does silly things like tampering with exemptions and as a result have a massively larger GST Act than we do. Are dried apricots fresh fruit? Are exported coconuts fresh? Is coconut ice fresh? Are bounty bars covered? How do frozen peas and veges fit into this exemption? Will retailers have to spend a lot of money complying with the act, changing their accounting and IT systems to cope with this awkward change? I think Labour should stop thinking about tampering with a good piece of legislation and instead focus on raising the quality of life and incomes for all New Zealanders.
Envy Tax – a smile back to tax accountants and lawyers faces
So that leaves the 39% tax rate on those who have personally succeeded and earn incomes over $150,000. This is an increase of 6%, and hardly rewards our nations most valuable taxpayers. I think that it is unnecessary and very disappointing when many of these earners have the ability to go 3 hours west to Australia and earn more. The lower tax rate here helps keep some of our country’s largest taxpaying citizens who we need to maintain the tax base and welfare state we have developed. Why punish high income earners? I think those that pay tens of thousands in tax per year, as opposed to consuming tens of thousands per year should be rewarded. With all the healthcare, medical, pharmaceutical, diet advances and lifestyle changes we are living a lot longer, which places a great burden on the taxpayers. With the pension age of eligibility only at 65 years of age, we just cannot afford to lose high income earners. Also this tax will mean a lot of people become companies, partnerships and trusts and be contractors not employees, and perhaps billing their would be employer’s subsidiary companies to get around the inevitable restrictions that would be imposed. Again tax accountants and lawyers will win.
Then again they always do under Labour. Remember the 25% superannuitant surcharge, and differential tax rates under Labour from 1999 – 2008. National is shortly going to strip lawyers and accountants gravy train of annual gifting $250 – $550 fees for signing a template document and IRD form to forgive $27,000 of debt off your own home (and other assets) each year in favour of your Trust.
Labour’s Policy Rating
I will be generous and give them a solid 1/10 for making an effort.”
Some clients have emailed or texted me with positive feedback on my interview with Alastair Wilkinson for the 6pm TV3 News today on the Home Energy Rating Scheme as proposed by the NZ Green Building Council. This scheme seeks to rate houses out of 10, and it is hoped Vendors will get a rating to advertise their listing to prospective purchasers who can make an informed decision.
It is a voluntary scheme which had a big launch today. I don’t think this scheme will get massive traction as most houses will get a fail rating of 4 or below. This is because most houses are not new and built to the latest performance standards with ideal sun orientation, double glazing, and the highest ratings of underfloor, wall or ceiling insulation. So only the very newest homes with a big budget to spend to get the highest 9 or 10 ratings are likely to use this voluntary scheme.
I am worried that this may make a move towards compulsion of this Scheme a reality. The Green party would like this to happen. I don’t see the point of creating this industry. What is the harm in asking for an invoice to prove the level of insulation installed and the date of this. On some hosues you just know they will be cold in winter. For example they are clad with concrete block or tilt slab concrete walls, they face south or west, or have no underfloor or ceiling insulation. You can easily inspect underfloor insulation on most older houses as you can peak under the house. Remember to take a torch along to each property inspection you do as part of your due-diligence. There is nothing stopping you taking a ladder and peering into the manhole space at the ceiling insulation – otherwise you can get someone to do this for you. I have a couple of builders on tap that I pay a box of beer to do such inspections for me.
I will watch whether the home energy rating scheme takes off – I doubt it will for at least 5 years.