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  • Tax Working Group Report & Related Matters

    The sort of misinformed twaddle that makes me angry:

    "The glaring hole" in the tax system - no tax paid by rental property owners:

    Sunday 4th October 2009

    The $200 billion rental property sector not only pays no tax, but is actually getting refunds when it might fairly be contributing tax of $500 million to $900 million a year, says a report from the last meeting of the influential Tax Working Group.
    The TWG calls widespread and growing tax minimisation using rental property investments, especially by top bracket taxpayers on the 39% tax rate, "the glaring hole in the current tax system".
    Led by Victoria University, with input from the Treasury and Inland Revenue Departments, the TWG's latest report was issued Friday and all but rejects a capital gains tax on property as an option for New Zealand.
    Instead, it turns its guns on the rental property sector with proposals to apply the so-called Risk Free Rate of Return method to assumed income from rental property, which the TWG estimates could be worth $500 million to $900 million in additional tax revenue every year.
    "Recent data show that revenue from the approximately $200 billion rental property sector is negative and has trended downward since the introduction of the 39% tax rate in 2000," the working paper says. "The glaring hole in the current tax system is the rental property sector.
    "There are efficiency and equity problems with the different treatment of savings in the form of bank accounts, and savings in the form of rental property."
    Under an RFRM tax, "rents from land would not be taxed, and other expenses relating to the investment would not be deductible, but a risk-free rate of return would be applied to the net equity in the property and included in taxable income".
    This approach would not work if a capital gains tax were introduced, but if a CGT was rejected, then "the TWG considers that the RFRM for rental properties is an option worth considering".
    The downsides would be the potential for rents to rise and hurt low income renters to meet new tax obligations; lower property values; the potential to make debt-funded rental property investment more attractive than equity-funded; and tax being payable on loss-making properties.
    Applying such a tax only to rental properties might also encourage further personal home ownership as a preferred investment by New Zealanders.
    The working group paper on the RFRM proposed, prepared jointly by the IRD and Treasury, also suggests $1.3 billion a year in tax is not being collected because of the questionable practice of allowing depreciation deductions for buildings.
    While buildings were a normal business expenses and should perhaps be depreciable for consistency's sake, the group noted that only industrial buildings are allowed to depreciate under United Kingdom tax rules.
    The group identified an alternative option as ring-fencing losses on rental property and making them non-deductible against other income, although previous ring-fencing attempts had proven "reasonably easy to circumvent".
    Along with a land tax, such a tax on rental property could go a long way to creating the substantial new sources of income the Government requires to help fix looming Budget deficits, without seriously distorting economic activity.
    A rental properties tax might also potentially discourage speculation in residential property, which is commonly blamed for imbalances in New Zealanders' savings and investment habits that lead to high foreign indebtedness.
    The TWG's land tax paper suggests between $160 million and $460 million could be collected in land tax applied at a rate as low as 0.1% of capital value.
    The group has a day-long conference scheduled in December, and its final report is expected to have influence on government deliberations on tax reform, which Prime Minister John Key has signalled is one of his Government's top six economic policy priorities.


    http://www.sharechat.co.nz/article/3...ty-owners.html

  • #2
    More uninformed drivel. Will it ever end??

    Comment


    • #3
      Lies, damned lies and the TWG

      It will never end for any number of reasons.
      Two being:
      • Look at the make-up of the TWG - all baggage-laden 'experts'

      • It's about taxation/government income - should include government spending

      I still think the disinformation is by design, is
      aimed at the vacuous and gullible media and
      even less savvy populace, and may well be
      part of a craftily-hidden agenda.

      Quite likely a CGT, despite all the bleating to
      the contrary.

      I agree there are glaring holes. Where they
      are is quite another matter, of course. A few
      'talking heads' come to mind.

      Can't wait for the NZPIA to issue proceedings
      against all and sundry who make such libellous
      allegations as:
      "The glaring hole" in the tax system - no tax
      paid by rental property owners"
      As the IRD are part of the TWG, they should
      be joined as a defendant.

      Not holding my breath, though.
      Want a great looking concrete swimming pool in Hawke's Bay? Designer Pools will do the job for you!

      Comment


      • #4
        Originally posted by Perry
        I still think the disinformation is by design, is aimed at the vacuous and gullible media and even less savvy populace, and may well be part of a craftily-hidden agenda.
        I totally agree Perry. I'm still trying to figure out who/what is behind it and the only thing I can come up with is an excuse to broaden the tax base. We do have serious problems with continuing to provide for our ever-aging population and perhaps this is the way they're planning to do it.
        You can find me at: Energise Web Design

        Comment


        • #5
          Originally posted by flyernzl View Post
          While buildings were a normal business expenses and should perhaps be depreciable for consistency's sake, the group noted that only industrial buildings are allowed to depreciate under United Kingdom tax rules.
          For heaven's sake....residential buildings in the UK aren't made of wood, they're made of double brick (not brick as a cladding outside wood) or stone. There is nowhere near as much deterioration over time on a standard UK property. The only wooden buildings with tin roofs in the UK are very small and are commonly known as garden sheds.

          Comment


          • #6
            Fallacious Calumniators

            It's a logical fallacy called confirmation bias.

            Roughly, it means that any data supporting
            a particular stance will be trumpeted, but any
            data that is dis-confirmatory will be ignored,
            or lightly passed over in a dismissive fashion.
            Want a great looking concrete swimming pool in Hawke's Bay? Designer Pools will do the job for you!

            Comment


            • #7
              I wonder if the TWG's $900M included

              a. The increase in accommodation supplement that would result from the increase in rents that would be necessary to ensure that property investment is still a viable/sensible option.

              and/or

              b. the increase in Housing New Zealand's responsibilities to house the poor unfortunates who would be made homeless by those landlords who exit the market as a result.

              Maybe "Jones on Property' should be compulsory reading for all members of committees pontificating on changes to the treatment of the rental market.

              cube
              DFTBA

              Comment


              • #8
                Just psychologically preparing the public for previously unseen tax changes on property...

                Comment


                • #9
                  Could the govt pick a worse time to throttle demand for new housing? I sense a massive housing shortage in the winds of change.

                  (and before people comment landords dont build many new houses.. I know, but they do buy older houses that people need to sell to build new houses)

                  Comment


                  • #10
                    "I still think the disinformation is by design, is aimed at the vacuous and gullible media and even less savvy populace, and may well be part of a craftily-hidden agenda"
                    Can someone please explain how these findings are 'disinformation'? It is a research group working with Victoria university who are objectively reviewing our taxation system, its about as good/clean as information in this country can get.

                    Rental owners expect not to pay capital gains tax, yet are happy to claim tax back for paper depreciation and net losses from deliberately negatively geared rentals.

                    You make money in NZ, you should pay tax on it like all other sectors. IRD records show they infact lose money to the rental market.

                    It is a hole. It has now been highlighted by this group in the aim of forming a 'world class tax system' one of John Keys main objectives since coming to power.
                    Last edited by JohnJackson; 06-10-2009, 07:49 PM.

                    Comment


                    • #11
                      Well John, their findings are in error. I run seven residential rental properties, I do make a cash profit on renting out these properties and therefore I do pay income tax on this profit.
                      So that immediately shoots down their argument. Someone (i.e. me ) does pay tax in the residential property sector.
                      Even if I am the only person in NZ doing this there is some tax paid, so on this point they are wrong.

                      As with most commentators on the property market they are confusing speculators with investors. Investors (and I am one) pay tax on their rental profits. Speculators who buy and sell with the intention of making a capital profit are liable for tax on that profit under current taxation law. If they do not pay that tax, that is a fault in the current operations of IRD not a fault in the way the tax law is structured. Rather than try and change the law, they should concentrate on the enforcement of the tax law as it currently exists.

                      Comment


                      • #12
                        Well what about the people who,lease expensive cars to lower their taxes or who have even bigger mortgages on diary farms to hide their taxes and gain capital earnings?
                        The problem has only become what it is since that tyrant Herr Helen decided that we will all pay more tax just because she could and didn't see why everyone else shouldn't. Change the tax rate back and solve the issue.
                        tax at 25 - 30 % is acceptable and is sufficient for most people to be happy to pay.
                        It won't matter what else they do in terms of growing the tax base we will find a way around it. Muldoon tried all these things and failed. Govt's forever have been trying new schemes to collect tax and continue to fail forever penalizing those that cannot defend their tax payments.

                        The greatest leap forward we ever did was once the tax rates were lowered by Douglass and Richardson and all that has been undone bby Bolger and Clark.
                        We need to prune govt. spending way down and allow people to regain their spirit and strive and achieve without being over ridden by the state.
                        But don't expect university troughers to understand the average working man and his family. They just never will. Too much bad education stuffed into their heads.
                        Last edited by revdev; 06-10-2009, 08:45 PM.

                        Comment


                        • #13
                          "Recent data show that revenue from the approximately $200 billion rental property sector is negative and has trended downward since the introduction of the 39% tax rate in 2000," the working paper says. "The glaring hole in the current tax system is the rental property sector.
                          "There are efficiency and equity problems with the different treatment of savings in the form of bank accounts, and savings in the form of rental property."
                          Under an RFRM tax, "rents from land would not be taxed, and other expenses relating to the investment would not be deductible, but a risk-free rate of return would be applied to the net equity in the property and included in taxable income".
                          Findings are merely stating facts and are not in error.

                          The fact that you aren't making use of the 'hole' in the tax law does not mean the hole does not exist.

                          Comment


                          • #14
                            There is actually no loophole just for property investors.

                            There does exist a general ruling in tax law that if you do purchase a capital asset (a farm, a machine, a property) in order to use that capital asset as part of a business to derive a taxable income and eventually when you finally dispose of that capital asset you are able to sell it for a price that is higher than your original purchase price, that is deemed to be an 'accident' and is treated as a non-taxable capital gain.

                            Thus a farmer who farms for many years and finally sells his farm on retirerment does not pay tax on the capital gain, an entrepreneur who builds up a successful company (Orcon, TradeMe, Kathmandu) and then sells out does not pay tax on the capital gain, a motel or hotel owner who retires from the business does not pay tax on the capital gain.

                            When these people say "We want to remove the special tax loopholes for property investors" what they are really saying is "We want to introduce special tax penalties for property investors that will not apply to anyone else".
                            That is a valid point of view that can be argued out, but they should state what they really intend rather than hide it behind untruths.

                            Comment


                            • #15
                              Originally posted by JohnJackson
                              Can someone please explain how these findings are 'disinformation'?
                              First, let me ask you if you remember the government issuing
                              lifetime drivers' licenses that lasted for how long, exactly. . . . ?

                              Second, the way the superannuation surcharge was promised
                              to go and . . . ?

                              I can’t find it, so maybe you can you tell us what the terms of
                              reference are for the TWG?

                              And including the IRD in the TWG!? Jees, that’s like having mostly
                              foxes in the hen delegation to the NAWAC (National Animal Welfare
                              Advisory Committee) on battery cages. (It’s hard for the foxes to
                              get through the wires)
                              Originally posted by Perry
                              I still think the disinformation is by design, is aimed at the vacuous
                              and gullible media and even less savvy populace, and may well be
                              part of a craftily-hidden agenda.
                              Originally posted by JohnJackson
                              Can someone please explain how these findings are 'disinformation'?
                              Sure. Lets start here:
                              The $200 billion rental property sector not only pays no tax, but
                              is actually getting refunds when it might fairly be contributing tax
                              of $500 million to $900 million a year, says a report from the last
                              meeting of the influential Tax Working Group.
                              Pays no tax? That's an unambiguous statement and it's false.

                              Well, I never . . . I can tell you that I/we pay tax on all rental income.
                              Yet the TWG says otherwise. Who do you trust? Me? Other PIs?
                              Your own experience, if you’re a PI? Your common sense or . . . . ?
                              Originally posted by JohnJackson
                              It is a research group working with Victoria university who are
                              objectively reviewing our taxation system, its about as good/clean
                              as information in this country can get.
                              And your evidence in support of that is . . . . ?

                              Information isn’t always and every way the issue. It’s the spin that’s
                              put on it. Refer to the TWG quote above.
                              Originally posted by JohnJackson
                              Rental owners expect not to pay capital gains tax, yet are happy
                              to claim tax back for paper depreciation and net losses from
                              deliberately negatively geared rentals.
                              Guess what? Any business of any sort in NZ can claim a tax refund
                              on an operational loss.
                              Originally posted by JohnJackson
                              You make money in NZ, you should pay tax on it like all other
                              sectors. IRD records show they in fact lose money to the rental
                              market.
                              And your evidence in support of that is . . . . ? Or do you take the
                              fox-in-the-henhouse’s word for that? Which of your IRD sources/
                              contacts can I contact to get a refund from for the income tax paid
                              on my/our rental income?

                              And BTW - do you suppose ‘the rental market’ includes HCNZ?
                              Originally posted by JohnJackson
                              It is a hole. It has now been highlighted by this group in the aim of forming a 'world class tax system' one of John Keys main objectives since coming to power.
                              Excuse me, I’m struggling to maintain my composure.
                              “World class” from just whose perspective, I wonder? The only
                              hole evident is the lack of understanding of reality. By many
                              people. What we have here is akin to a group of convicted
                              criminals making up the jury in an aggravated robbery trial.

                              Following this is the membership list for the TWG. Go down and
                              tick off those who don’t make their money from:
                              • the government
                              • tax accountancy
                              • tax law.

                              Let us know how many are left and what they are as a percentage
                              of the TWG?
                              The TWG, which comprises individuals from the private sector and
                              academia and also includes tax policy officials from the Treasury
                              and Inland Revenue, has the following membership:

                              Bob Buckle, Faculty of Commerce and Administration, VUW (Group Chair)
                              Rob Cameron, Cameron Partners
                              Paul Dunne, KPMG
                              Arthur Grimes, Motu Economic and Public Policy Research
                              Rob McLeod, Ernst & Young
                              Gareth Morgan, Gareth Morgan Investments Limited
                              Geof Nightingale, PricewaterhouseCoopers
                              Mike Shaw, Deloitte
                              John Shewan, PricewaterhouseCoopers
                              Casey Plunket, Chapman Tripp
                              John Prebble, Law School, VUW
                              Mark Weldon, NZX Limited
                              David White, Centre for Accounting, Governance and Taxation Research, VUW

                              Members from Inland Revenue Department
                              Matt Benge
                              David Carrigan
                              Robin Oliver

                              Members from the Treasury
                              Norman Gemmell
                              Michelle Harding
                              Bill Moran

                              In addition, experts in various areas have been invited to attend some sessions:

                              Len Burman, Syracuse University, New York
                              Andrew Coleman, Motu Economic and Public Policy Research
                              Peter Conway, New Zealand Council of Trade Unions
                              Lew Evans, Victoria University of Wellington
                              Phil O'Reilly, Business New Zealand
                              Susan St John, The University of Auckland
                              Have you any idea of the difference between the key aspects of
                              National’s perspectives and plans on ‘climate change’ when in
                              opposition and now they’re in power? To call them liars would be
                              euphemistic. Standard political malfeasance.

                              In her book, Tax Wealth & Equity (sub-titled What your accountant
                              [and the government] doesn’t tell you) accountant Fiona Clayton-Law
                              says this:
                              The government tells you to save as much as you can - I will show
                              you why saving money in the bank for your retirement and paying
                              off your mortgage is a sure-fire recipe for financial disaster.
                              Look around PT for clues about certain realities. Try the Capital
                              Gains thread if you’ve several hours to pass. Although he’s not
                              been able to provide the reference yet, be sure to read Dean’s
                              reference to a government-sponsored scheme called kiwisaver.

                              Since composing the reply above, I note that there has been the
                              following addition to the thread:
                              Originally posted by Flyernzl
                              Well, their findings are in error. I run seven residential rental properties;
                              I do make a cash profit on renting out these properties and therefore
                              I do pay income tax on this profit.
                              Your reply seems to avoid an apposite response to that, in relation
                              to the claims made by the TWG, which I've quoted earlier in this
                              post. Why?

                              For the avoidance of doubt:

                              Does the $200 billion rental property sector pay no tax
                              or does it pay income tax on rental income? Yes/No
                              are the available answers, there.

                              The nub of the response is simple: if the answer is 'yes,'
                              then the TWG are liars - plain and simple. Further, if 'yes,'
                              then, to borrow a phrase from Mitre 10: "end of story!"
                              Last edited by Perry; 06-10-2009, 11:10 PM.
                              Want a great looking concrete swimming pool in Hawke's Bay? Designer Pools will do the job for you!

                              Comment

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