Increase GST effect on property investments

[ActionMan]

Started this thread to dicuss the effect of an increase GST on property investors.

I would say that I good number of property investors (maybe 50%) don't claim GST on maintenance of their buy and hold property portfolio.

The proposed increase in GST means that their expenses have just increased by 2.5%. Even though residential rents are not subject to GST this should definitely be passed on to tenants.

I will be sure to add this on my next rental review.

[ActionMan]

Vikings Post on "Tax Working Group Report" thread

This was Vikings post on another thread.

I Notice that as far as I can tell no one has taken out the calculator to comment on the effect that 2.5% in GST is going to have on house prices. I've seen cars and food bandied about , but stop and take a look.
Mr Key has just increased the value of your rental portfolio by 2.5%. and that's before any inflation sets in. This is greater than the 3% depreciation that is often used by many.
Now lets say a house cost $300k [email protected]% that's $337500
the same house a cost $300k but at 15% GST that's $345000
Thats an extra $7500.00
At $400k its $10,000
So the new house is going up in price around $10k minimum.
Shortage of housing looming as it is so the effort to buy a house has just got harder.
Why would you sell your house when there is a Govt. guaranteed price increase available later in the year?

No to bad a gain and that's without the normal gains expected this year.
Jolly good job. Everything you buy now will be worth more by the end of the year. Better than govt. guaranteed bank deposit.
Now who thinks that this simple arithmetic won't drive investors to buy and owners to want to buy before the increase in GST?

They have in essence attacked the wrong target. Attacking LAQC's etc missed the real rort. LAQC's only allow offsets of income. Trusts on the other hand are now used more for income sheltering than their original purpose of protecting assets. So we have many high income earners whose income is trust sheltered whereby the trust pays 33% and a small income is paid to the earner keeping their taxable income in the lower range. This allows tax at 19% and allows claims for WFF etc.
Nothing new in this rort. Used to collect university subsidies, welfare payments by farmrs, avoiding rest home fees so that the tax payer paid, and much more.
Way to fix it. Tax trusts at 39% and personal and company taxes at 30%. Do that and watch the assessable incomesskyrocket

.

[drelly]

Actionman - no discussion needed, we all agree with you!
I think we're going to see some short term dip in prices due to panic, but longer term, all they're doing is increasing rents and encouraging capital gain!

[Steve Taylor]

Here is my prediction for the next 6 months written in November and it looks spot on so far http://unconditional.co.nz/dith/2009...next-6-months/

[Perry]

If you're the author, Steve, perhaps a wee edit is
in order? My guess is that next should read neck.

Here is where I put my next on the line and tell you what I think is going to happen.

[Steve Taylor]

Thanks for that, well spotted Perry. What will I muck up necks.

[Perry]

T'will be an interesting year, that's for
sure; neck-and-neck or next-by-heck.
.

[Steve Taylor]

We are now going into the lower price range of my graph, but I do not think it will be a big drop. Buyers will make lower offers as the papers say the market is heading South.

This will be a frustrating couple of months for all.

[Viking]

GST up and tax cuts in. Key as much as said that yesterday to the dairy farmers at Edendale.

[Wayne]

I would say that I good number of property investors (maybe 50%) don't claim GST on maintenance of their buy and hold property portfolio.

The proposed increase in GST means that their expenses have just increased by 2.5%. Even though residential rents are not subject to GST this should definitely be passed on to tenants.

How do you claim the GST for the maintenance of a residential rental? Am I missing something here?

[CJ]

How do you claim the GST for the maintenance of a residential rental? Am I missing something here?

Short term lets. I think that is the point he was making. normal long term lets cant claim so there will be an increase in costs. however, interest is the main cash expense so the effect is minimal. My spreadsheet below models it.

[eagle]

If you are GST registered you claim GST off IRD when you bought, on buying price, and you have to pay GST on selling price. Does anyone know if bought when it was 12.5% the IRD will want 15% on selling?

[CJ]

Eagle - Apparently the transaction rules from when GST went from 10 - 12.5% are still in the act. That would be a good place to start as it is unlikely they will change them.

[eagle]

CJ said

Apparently the transaction rules from when GST went from 10 - 12.5% are still in the act. That would be a good place to start as it is unlikely they will change them.

What were the transaction rules CJ? Did you pay the higher rate or the rate you originally paid at?

[CJ]

What were the transaction rules CJ? Did you pay the higher rate or the rate you originally paid at?

I dont know what they said but they are still in the GST act if you are interested. the act can be found at http://www.legislation.govt.nz/act/p.../DLM81035.html