Posts Tagged ‘tax reform’
In a fascinating development since my last blog, the Minister of Finance put up a poll on his own website at www.billenglish.co.nz asking:
Do you support tax changes to investment property”
The interesting thing is that out of 863 votes at 7:07pm Sunday 25th April 2010, that 548 people voted no. That’s a massive 64% of the total vote. Whilst this poll has a small sample size and cannot be said to be scientific like most web polls, even with a massive margin of error of 13.9%, it would still have more people not supporting tax changes to investment property.
64% of voters do not support tax changes to property investment
This is a very interesting result indeed as this Government doesn’t want to do something its followers don’t like. National cannot govern alone, and with ACT not guaranteed to win Epsom or get the magic 5% threshold in next year’s election, nor the continued support of the Maori party – I view that the Minister of Finance may have to retract his words he mentioned on NewstalkZB and just keep the tax changes to 1 thing only, depreciation. This vote is an indication that these tax changes are going to be unpopular policy – obviously to the many tens of thousands of property investors New Zealand has.
So why don’t you have your own say at www.billenglish.co.nz before the poll closes. I will continue to monitor developments in the lead up to the all important 20 May 2010 budget with the legislative sword looming over property investors heads.
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:
The comments are quite interesting, particularly from my friend and passionate property investor Andrew King (NZPIF Vice President).