Another annoying piece in the Herald

[SuperDad]

Hi again,

Boy, there is a real media beat-up on property investment at the moment. Here is an excerpt from another article/opinion piece from the Herald, this time by Tapu Misu, who quotes a person who claims that they won't invest in property as a matter of principle:

Robson says he won't invest in property on principle. He argues that two features of the tax regime are costing the country billions in lost tax: the inequitable tax subsidy investors can claim on their properties that homeowners cannot; and the fact that although property bought for capital gain is already taxable under current legislation, it's seldom declared as such.

I agree with the second part - existing legislation needs to be more actively enforced.

It is the first part that gets up my nose, and makes me want to start picking! There is no inequity in the way homeowners and investors are taxed. Property investment is a business, and is taxed as such. Home ownership is not a business. End of story.

Consider an analogy. Every household (or nearly every household) runs a motor vehicle, for their own personal travel. Likewise, most (if not all) businesses have a fleet of at least one vehicle. The operating costs of a business fleet are deductible; the operating costs of a "personal fleet" are not. Is this inequitable? Clearly not.

Paul.

[graham]

Tapu Misa's article is pretty damning on property investors - or "property speculators" as she calls us.

Tapu Misa asks what will happen when, thanks to people like you and I (well - I don't count at the moment since I sold my IP), "nurses and firemen can no longer afford to live anywhere near our cities? Never mind, at least some of us will be having comfortable retirements."

She ends by inferring that if people weren't investing in property, there would be an extra $8 billion that could be directly channelled into education and health!

[tricky]

Seems to be a lot of anti-property sentiment.
Wonder if it's related to the proposed changes to the IRD associated persons rules which are being reviewed shortly?
Someone is very keen on keeping the 'un-affordibility' of property in the public eye.

[graham]

I think a lot of it is caused by the so-called "housing crisis" that is being reported currently. People feed off the doom and gloom, start looking at the figures being bandied about and the families that can't afford new houses for whatever reason (and undoubtedly some of these are genuine), and then start looking for someone to blame.

[captaincrab]

Mark my words. LAQC's are on the way out. The tax deductabilty distorts the true yield. Some of my friends houses are really only returning 4-5% and if there was no tax advantage they wouldnt have been so keen to buy them but would have spread their money around.

[Edinburgh]

Mark my words. LAQC's are on the way out. The tax deductabilty distorts the true yield. Some of my friends houses are really only returning 4-5% and if there was no tax advantage they wouldnt have been so keen to buy them but would have spread their money around.

Agree entirely.

LAQCs and people trading without being taxed are the two obvious issues to be addressed and I wonder where this country would be if they had been addressed a decade ago together with tax advantages for investing in productive NZ (eg: super funds and owners investing in equipment or design).

I think it quite plausible to suggest that we wouldn't have the housing issues we have now and we would have a much stronger economy.

I have been thinking about how to enforce the rules on taxing traders (as a professional in this area, I would love to see these people nailed).

Seems to me a simple step would be to get the seller to sign a legally binding statement at the time of sale, something the estate agent could provide along with the S&P agreement. This statement would ask if the house is their primary residence and for how long if it is; how many houses they have sold over the last 10 years; and so on.

These would go to the IR which would pick up the traders.

Of course people will lie, but that would be a criminal offence. It might be enough to persuade the majority of non registered traders to stop what they are doing or at least pay the tax.

[tricky]

I have been thinking about how to enforce the rules on taxing traders (as a professional in this area, I would love to see these people nailed).

Since it's hard to enforce these rules - why bother?
All you do is encourage the smart, innovative brains to work on clever sidesteps which is a bit unproductive for the country.
Or are we filled with hatred at these developers and, by god, we're going to make them pay!
If it's hard to tax these earnings - why not wait till these earnings are spent?
Didn't we have this debate about 20 years ago and ended up dropping the rate of tax on earnings and introduced a tax on spending (GST)? Seemed a rather clever way to tackle this problem.
Assuming this is a problem that needs to be tackled.

[Edinburgh]

[QUOTE=tricky;72816]All you do is encourage the smart, innovative brains to work on clever sidesteps which is a bit unproductive for the country.
QUOTE]

I don't think these people are smart or innovative. They are ordinary people who don't see what they are doing as illegal.

Eg: just bought a house for $450k privately that the seller bought from his neighbour for $400k six months ago. Do you think he will declare that income? Not likely.

Would he if he had to sign a statement - quite possibly because he is, otherwise, a fine upstanding and law abiding citizen.

He still makes a profit and the state gets its taxes.

[Wayne]

Mark my words. LAQC's are on the way out. The tax deductabilty distorts the true yield. Some of my friends houses are really only returning 4-5% and if there was no tax advantage they wouldnt have been so keen to buy them but would have spread their money around.

And if they owned them in their own name they could still claim the same deductions - don't see what LAQCs have to do with it?

Let's remove all tax deductability!

[xris]

Hello Edinbugrh,

Eg: just bought a house for $450k privately that the seller bought from his neighbour for $400k six months ago. Do you think he will declare that income? Not likely.

The above quote and your earlier post certainly contain anovel idea and an innovative approach to dealing with the 'problem'.

However I see problems.

1/ Grossly unfair on the person who buys a home in an up market and then six months later has to sell up to move to Australia to look after his terminally ill mother. there happens to be a $50,000 difference in the two sale prices, so he pays tax as a property trader. Fair?

2/ As you yourself mentioned, people will simply lie, or bend the truth to suit, making a mockery of the system.

3/ I can see all sorts of legal issues arising regarding privacy, the liability of the agent (incidentally, what if there is no agent?), and many others.

Incidentally, since when does a property trader need to be registered?

I agree though that something should be done about the obviously large number of people indulging in this sort of behaviour, very many of whom are reading this now.

Just an aside, we should not forget the very many traders who do act lawfully and do pay their tax. We should not tar them with the same brush as the baddies.

We should also not forget that the majority of buyers are not traders or speculators - they are normal people looking for a home.

I believe a much easier way to do something about these 'baddies' may be

a/ As mentioned before, the IRD should make a gretaer effort to audit these people and make an example of them in public, in the media, etc.

b/ Sorry to bring it up again, but true or not I believe the REI is grossly remiss in not targeting the so called property finders who are (possibly) acting as unregistered real estate agents. It's silence in this regard is deafening. One or two high profile test cases is all that is needed.

What concerns me most is that the rules are there, it's just that nobody seems too bothered about enforcing them.

xris

[PeterEmpowerEd]

See Olly's column re media

Olly Newland is used to the "greedy speculator" charge.
His latest column has something to say about this...

http://www.EmpowerEducation.com/newland.bz

(He's had A LOT of feedback about this column.)

[xris]

I noticed this on that site (moderators, please feel free to delete this if I should not be posting this here). Has anyone ever seen a book entitled “The Four, or Six, or Eight, or Two, Steps to….?

Incidentally, I bought the book recently (didn’t pay full price of course). One good idea from it (all that’s needed I suppose). I found the rest to be basic repetition of what all the other books say glossed up to fill in all the pages. Still, I’ve read worse. It's fairly well written, which is one advantage it has over many similar books. Would I buy it again? No, but I would spend ten minutes in a bookshop reading the bit I found useful.

There endeth the book review.

xris

PS/ Writing books ain’t easy, so let’s not forget that.

[SuperDad]

Its that magic number seven again.

Olly - Mary Holm only managed to make it to number 9? At least Brian Rudman and Tapu Misu (at #5) have some excuse - they are not claiming to be experts in personal finance. What is Holm's excuse?

Paul.

[OllyN]

Superdad
There were so many contenders for the 10 places available in the "loopy list" that inevitably some distortions had to creep in. Runners up who didn't quite make the grade included Dick Hubbard, Brad Sugars, the designers of inner city 4brm by 350 sq ft slum apartments, the Building Standards Authority, and Judith Tizard the Minister for Auckland (in absentia) to name but a few. All these fine people or organisations vied for places on the list but sadly had to be ommited. Mary Holm only got in because she seems to know something about shares--no body knows what but there you are. Perhaps some readers of this site would like to suggest names of other worthies who are deserving of a "Loopy" medal.
Olly Newland.

[PeterEmpowerEd]

Book? It's a CD

Incidentally, I bought the book recently (didn’t pay full price of course). One good idea from it (all that’s needed I suppose).

Xris, um, how?
The 7 key traits of successful property investors is an audio CD.

Thanks for the review (I think). And good skills getting a pic in your post!