Ring Fencing Matters

[BlueSky]

How about profits are ring- fenced as well- pay no tax until losses occur.

[Perry]

Shame we do not have an Arc de Triomphe to use as a backdrop for some voluble protests.

But a demonstration of 14 PIs isn't likely to garner much attention, is it?

[PC]

What I don't understand is why aren't the tenants up in arms?
What happens when yet another rent subsidy is removed?
Rents go up.
Guess they just aren't too bright.

[Perry]

That's because they are not 'making the connection' between rents, the gummint's obtuseness, un-keepable promises, etc.

Hell! Dhil blithely ignores advice on consequences he gets from officials.

So tenants must be able to do the same, right?

[Rosco]

Sell the entity not the asset.

There are still rules to capture selling the entity
- doesn't get around brightline
- general loss limitation rule, if you sell over 51%, then the entity forfeits the losses carried forward

Also no lawyer or accountant will like a client buying an entity!

Lastly - why would a new buyer, get the old buyers losses from a rental? Nothing to do with the new buyer!

Ross

[Rosco]

In general I don't like ring fencing, and think any business should be claim losses, especially in the first few years.

But as I put above claiming losses for years and years and years, and then selling for a capital gain, no tax, without ever making a profit, or even getting close, isn't right either.

Like most things under Labour, it is rushed and poorly thought through, but its still coming.

Ross

[Perry]

Like most things under Labour, it is rushed and poorly thought through, but it's still coming.

Sounds just like kiwibuild, then.

[Nick G]

Most new build rental properties are negative (particularly with chattels depr) for the first few years, the refund helps you get started.

We are working with a client now who was originally proposed a new build by one of the usual suspects, it might have been OPES or PRE, and they were trying to justify making a $10K annual cashflow loss with no tax relief because the property would appreciate 6% PA in value. That was literally the proposal. Dear lord.

So if investors are not incentivized to build and as Kiwibuild shows home owners aren't all that keen either, who is going to fund 'ze housing we need?

[Rosco]

Most new build rental properties are negative (particularly with chattels depr) for the first few years, the refund helps you get started.

We are working with a client now who was originally proposed a new build by one of the usual suspects, it might have been OPES or PRE, and they were trying to justify making a $10K annual cashflow loss with no tax relief because the property would appreciate 6% PA in value. That was literally the proposal. Dear lord.

So if investors are not incentivized to build and as Kiwibuild shows home owners aren't all that keen either, who is going to fund 'ze housing we need?

Or what some people have done in the past
year 1 $10k loss, no capital gain
Year 2 $10k loss, no capital gain
year 3 $10k loss, no capital gain
then get sick of it. Sick of putting in money. Sick of being a flat market and no capital gain

So lose $30k cashflow, plus sell at a loss as market hasn't moved over the 3 years and not many buyers, so might lose another $50k.

Overall lose $80k and never ever buy again.


I suppose what I'm getting at is 6.3% might be average growth, but it is often 5-7 years of flat, and then 2-3 years of boom. So if you hold for 3-5 years over the flat period, you might gain $0

Ross

[Wayne]

Most new build rental properties are negative (particularly with chattels depr) for the first few years, the refund helps you get started.

We are working with a client now who was originally proposed a new build by one of the usual suspects, it might have been OPES or PRE, and they were trying to justify making a $10K annual cashflow loss with no tax relief because the property would appreciate 6% PA in value. That was literally the proposal. Dear lord.

So if investors are not incentivized to build and as Kiwibuild shows home owners aren't all that keen either, who is going to fund 'ze housing we need?

It will be negative depending on how much money you put in - invest more and pay less in interest costs.
Other business' have losses ring fenced yet they still invest at the startup stage.

[Don't believe the Hype]

What other businesses have losses ring fenced?

[Keys]

What other businesses have losses ring fenced?

An interesting question. One which will also be interesting to read the answer to.

[Wayne]

What other businesses have losses ring fenced?

Xero
Tradme (when they were starting out).
Any LTD company that hasn't elected to be a LTC really.

[Don't believe the Hype]

Xero
Tradme (when they were starting out).
Any LTD company that hasn't elected to be a LTC really.

Those losses are not ring fenced. If the owner had a profitable tax paying business these losses could have been off set.

The difference is property is being legislated to not allow the same.

[Wayne]

Those losses are not ring fenced. If the owner had a profitable tax paying business these losses could have been off set.

The difference is property is being legislated to not allow the same.

The losses stay in the business until offset by a profit - same as what property will be (irrespective of entity type).
Xero can't offset their losses against PAYE or some other company (in a simple sence).
I see the difference as being 'irrespective of entity type' really. Changes the argument for LTC a bit - doesn't negate the usefulness but changes it a bit (I'm not an accountant).