Repeal of interest deductions - fundamentally wrong

[Scallywag1]

I can understand the capital gain tax increase (or bright-line if you want a more palatable term!) as most countries have some form of capital gains tax but taking away interest deductions is fundamentally wrong.

Owning an investment property is a business (as stated by the IRD). Businesses in the western world can offset their expenses against their income. How can it be designated as fair that one particular business has one particular expense that is not allowed as a deduction?

Deducting a cost against income is not a "loophole". I can't believe that was even said.

The other fact that is fundamentally wrong is that it is a retrospective tax. It relates to a previous business decision. Business people who made that decision expected a level playing field moving forward, not the carpet taken away from under them as they do in third world countries and dictatorships. How can businesses be sure of anything when retrospective taxes start to be introduced?

The net result is that property prices will plummet, leading to a recession.

Limited work will be done to existing rental stock.

Rents will also increase which will hurt the very people they are trying to cater for.

It's going to send shock waves through the economy and will lead to a change of government.

We need to get together as a group and petition, shout, agitate and do whatever we can do to stop this bad tax.

Scally.

[crashy]

People will leave properties vacant rather than rent them out, because it works out cheaper:
Stuff:

" How this could work in practice

You buy a house in 2022 (the rule only applies to homes bought after Saturday) for $1 million.

The house gains in value to $1.6m when you sell it six years late in 2028, even without you making any improvements – so you net a $600,000 profit.

If you did not live anywhere else, you have no tax bill. That $600,000 is yours.

But let’s say you rented it out for two years because you were living overseas.

You don’t have to pay tax on the full $600,000 profit but you do have to pay it on the two years you were not there. The gain for those two years is calculated by looking at the proportion of the time it was not your main home and splitting the profit into that proportion. It is easy in this example: two-sixths of $600,000 is $200,000.

Now we can take that profit and work out how much tax you would have to pay. Remember the way the tax works is that the profit is added to your income for that year.

If we assume you are earning $80,000 from your salary, the profit takes your taxable income for that year to $280,000.

Because income tax rates are progressive, the first $100,000 of that profit is taxed at 33 per cent, the second $100,000 is taxed at 39 per cent. That brings you a total tax bill of $33,000 + $39,000 – or $72,000 on your profit of $600,000."

[donna]

Great first post Scally.

There will be fallout but my guess is Labour will keep coming out with something else. Mentioned so far is Interest Only loans gone, one rent rise in 12 months so if you start a new tenancy they will be on the existing rent rate until your year is up.

This one really narks me. How do you renew old property to keep it in good condition if you can not let go the current tenants, renovate and then re-tenant at a better rate that reflects the work you’ve put in?

No matter how quick Labour are to plug the gaps, more will keep appearing and then time will run out it will be the election and they’ll be gone.

National really do have to keep the pressure on and keep it relevant and in the media.

I agree Labour have got this one wrong and clever communication won’t cut it.

cheers

Donna

[jack2016]

People will leave properties vacant rather than rent them out, because it works out cheaper:
Stuff:

" How this could work in practice

You buy a house in 2022 (the rule only applies to homes bought after Saturday) for $1 million.

The house gains in value to $1.6m when you sell it six years late in 2028, even without you making any improvements – so you net a $600,000 profit.

If you did not live anywhere else, you have no tax bill. That $600,000 is yours.

But let’s say you rented it out for two years because you were living overseas.

You don’t have to pay tax on the full $600,000 profit but you do have to pay it on the two years you were not there. The gain for those two years is calculated by looking at the proportion of the time it was not your main home and splitting the profit into that proportion. It is easy in this example: two-sixths of $600,000 is $200,000.

Now we can take that profit and work out how much tax you would have to pay. Remember the way the tax works is that the profit is added to your income for that year.

If we assume you are earning $80,000 from your salary, the profit takes your taxable income for that year to $280,000.

Because income tax rates are progressive, the first $100,000 of that profit is taxed at 33 per cent, the second $100,000 is taxed at 39 per cent. That brings you a total tax bill of $33,000 + $39,000 – or $72,000 on your profit of $600,000."

only works if IRD agrees with you?

[Jeffa]

Donna

Interest only loans have not gone and seems unlikely with these tax changes that have still to be passed..

I have always only put rents up once a year every year why can't every other landlord.

National is no savior to property investors they started the crackdown on rentals with building tax depreciation and introduced the brighline test.

I think commentary has been blown out of proportion, all your properties will still double as has in every cycle.

I personally see buying opportunities coming up and rents spiking this year.

Personally I don't care if there are less landlords because I have less compitition for tenants and higher cashflow with rents..not that new tenants concern me because mine are all 5 plus year's and I look after them, treat them like humans not cattle.

Most long term landlords seem to forget we have made hundreds of thousands if not millions added to our networth so I think you all need to take a deep breath step back and analyze your situation more clearly.

As for new landlords welcome to the real world of investors..do you honestly believe you were in for a free ride to wealth?. Please lol.

[Engineer]

Robin Oliver from the governments lasted tax working group summed it up quite well in today’s herald.

It would amount to "a massive tax penalty on renting out property," he said.

"You're taxed on income that you don't actually have, because your profit is your income minus your expenses, but they just ignore the expenses part," Oliver said.

"You could have almost no profit, maybe a loss, but you still have to fork out thousands of dollars to the IRD. It's not an income tax, it's just a penalty."

NZ is the new venezuela of the South.

[artemis]

National have announced they will reverse the changes to interest deduction and bright line extension. They will be part of the government at some point.

[Jeffa]

National have announced they will reverse the changes to interest deduction and bright line extension. They will be part of the government at some point.

Cool, will they reverse the changes on building depreciation,lvrs, bright line tax because they were introduced under there watch and these muppets in charge are following nationals lead,
I don't trust any politicians but I learn to work with who you're stuck with.

[donna]

Jeffa, yeah I know - IO loans cut for investors has been talked about as another measure - not in yet.

So if you renovated a rental and you know it's now of a higher quality and therefore can achieve a higher rent - are you saying you'd keep it at the old rent rate until 12 months had passed since the last increase?

cheers,

Donna

[Jeffa]

Jeffa, yeah I know - IO loans cut for investors has been talked about as another measure - not in yet.

So if you renovated a rental and you know it's now of a higher quality and therefore can achieve a higher rent - are you saying you'd keep it at the old rent rate until 12 months had passed since the last increase?

cheers,

Donna

Yes,if that is the law.

I don't have a high tenant turn around but would make sure I have the capital available until I could recover cost.

I think most of these changes are manageable if you plan for a worst case scenario.

And it's the over leveraged landlords that are the ones that will feel the pinch.

New landlord's jumping in the game over the last 6 months will unfortunately find this out the hard way.

[Chris W]

I can understand the capital gain tax increase (or bright-line if you want a more palatable term!)

FYI, technically, a capital gains tax would also apply to capital gains on investments in all other asset classes including:

1) shares,
2) bonds purchased at a discount to par,
3) KiwiSaver,
4) sale of business that was purchased originally,
5) sale of a business that was started by an entrepreneur,
6) Bitcoin & internet coin offering,
7) gold and other precious metals,
derivatives on financial instruments such as futures, options,
9) foreign exchange
10) life insurance products
11) all non residential real estate (i.e commercial - hotels, motels, bed and breakfasts, office, industrial, retail, etc) - this would impact the listed New Zealand property investment companies that own commercial real estate in New Zealand

etc.

[Perry]

A Tony Alexander survey of PIs is here.

(Link courtesy of Anthonyacat)