Tax On Rentals – What You Need To Think About

[Marc]

Owning rental property is an addiction here in New Zealand. Just about everyone I know has a rental property. Some even rent or flat share in more “desirable” locations than they could afford to buy in but have one or two rentals in other suburbs.

Yet with all these rental properties, the government sees very little tax revenue because of the level of negative gearing put in place. Whether you own the rental property through a trust, a company (usually an LAQC – Loss Attributing Qualifying Company) or even just as an individual, the gearing most people go for is the costs associated with that property barely cover the mortgage and rates, and then the depreciation on buildings and the like can be applied to other PAYE based income.

Read more: http://www.karlrohde.com/2009/10/tax...o-think-about/

Cheers

Marc

[flyernzl]

The Government is still on a winner.

The tenants in" . . . other suburbs" are probably on some form of income assistance/family support, and the Landlord is charging that tenant less than the actual costs of living there (otherwise the Landlord would be making a taxable profit).
So the Landlord is subsidising the weekly living costs of someone who they have never met before the tenancy, and after the tenancy ends will probably never meet again, and in return is getting a tax write-off against their other income which is less than the subsidy (because the tax rate is less than 100%).
Therefor the Government is winning by the difference between the full living cost of residing in that property and the tax reduction of the Landlord. If this was not happening, the Government would be forced to increase the level of DSW payments.

Nice work for them, and the cash-losing Landlord, in a no-growth market, thinking they are being smart is actually being screwed.

I say it again - as soon as someone utters the words "a tax efficient investment" run don't walk for the door.

[Bob Kane]

Will you be caught? That’s what you really need to think about. I’m no tax lawyer or accountant, but I can see a world of hurt coming for rental property investors. I’m just glad I won’t be one of them!

I'm glad you're not a landlord as well.
But what are you?

Karl Rohde is a freelance technology copywriter and marketing consultant with nearly two decades of experience in business-to-business, high-tech, and direct marketing.

All talk and no do!

[Gatekeeper]

The Government is still on a winner.

The tenants in" . . . other suburbs" are probably on some form of income assistance/family support, and the Landlord is charging that tenant less than the actual costs of living there (otherwise the Landlord would be making a taxable profit).
So the Landlord is subsidising the weekly living costs of someone who they have never met before the tenancy, and after the tenancy ends will probably never meet again, and in return is getting a tax write-off against their other income which is less than the subsidy (because the tax rate is less than 100%).
Therefor the Government is winning by the difference between the full living cost of residing in that property and the tax reduction of the Landlord. If this was not happening, the Government would be forced to increase the level of DSW payments.

Nice work for them, and the cash-losing Landlord, in a no-growth market, thinking they are being smart is actually being screwed.

I say it again - as soon as someone utters the words "a tax efficient investment" run don't walk for the door.

And if all that debt had been put into a productive industry, maybe the renters in the lower socio economic areas would be getting higher wages, have a job and be able to afford more rent.
The landlords recently paid too much for their properties with debt. There shouldn't be a tax break for that!

[PC]

What tax break?

All businesses pay tax on profits.
That is income less expenses.
Where is this tax break??????

The only enequity is that PAYE suckers can't do this.

What do you call a 'productive' investment?
Lending your money to finance companies?
It's complete non-sense.
There is risk vs return - and the more the government plays around the more messed up it gets.

[PC]

Ok Gatekeeper - you've got me worried!
I might be missing out on some of those landlord tax breaks!

So lets list the difference tax breaks between Bob the "NZ public enemy No.1" landlord and say Fred the plumber - a typical small business man in a "productive" industry:

1. ???

[Gatekeeper]

I wouldn't think a plumber would go into debt to start a plumbing business hoping/gambling that in ten years time he may actually make a profit.
I'm talking debt-ridden landlords, overleveraged, who actually intend to make a capital gain and maybe never make a profit. The intention must be to make a profit surely, to be called a business for tax purposes.

I'm fine with ring-fencing losses, at least that would thin out the tax dodgers.

[Rolf]

Ok Gatekeeper - you've got me worried!
I might be missing out on some of those landlord tax breaks!

So lets list the difference tax breaks between Bob the "NZ public enemy No.1" landlord and say Fred the plumber - a typical small business man in a "productive" industry:

1. ???

Eagerly awaiting that answer too, because there is absolutely no difference.

And I completely agree with flyernzl - if it wasn't for the thousands of private landlords in NZ then the government would just have to provide more state housing or increase the dole.

[Rolf]

I wouldn't think a plumber would go into debt to start a plumbing business hoping/gambling that in ten years time he may actually make a profit.
I'm talking debt-ridden landlords, overleveraged, who actually intend to make a capital gain and maybe never make a profit. The intention must be to make a profit surely, to be called a business for tax purposes.

I'm fine with ring-fencing losses, at least that would thin out the tax dodgers.

Isn't it fairly normal to incur large capital expenses when starting up a business? Wouldn't the plumber normally need tools, materials, a van, advertising etc. - even before his first ever plumbing job was completed?
The only difference is that the initial expenses to setup a rental property business are much larger.

[Gatekeeper]

Isn't it fairly normal to incur large capital expenses when starting up a business? Wouldn't the plumber normally need tools, materials, a van, advertising etc. - even before his first ever plumbing job was completed?
The only difference is that the initial expenses to setup a rental property business are much larger.

Key word being CAPITAL. That's not what is being used, it's debt, many 100% debt, interest only.
Many who are getting tax breaks have little or no capital, they are relying on it being created, and meantime being subsidised by those with little or no debt in their "landlording businesses".
Warped capitalism?

[Rolf]

Ok, so capital, or not - my point is still, what about the plumber and his initial expenses? Whether they are funded by the plumber's own cash or by debt it's still an initial investment he has to make in order to create a business.

Please state a reason why property should be any different?

[flyernzl]

"Because its OK to hate Landlords, and we always confuse Landlords with Speculators".

[Gatekeeper]

"Because its OK to hate Landlords, and we always confuse Landlords with Speculators".

I am a landlord, have been for 28 years. When words like 'hate' come in the discussion is off the rails. We are talking fair tax treatment.
Back to the plumber. No-one (in their right mind) would start a plumbing business where the expenses exceed the income for the first ten years because of a huge initial capital outlay. Having done the accounts of many plumbers over the years I can assure you, it ain't happening.

It's a bit of a dumb comparison. Find a better one.

[CJ]

Back to the plumber. No-one (in their right mind) would start a plumbing business where the expenses exceed the income for the first ten years because of a huge initial capital outlay. Having done the accounts of many plumbers over the years I can assure you, it ain't happening.

It's a bit of a dumb comparison. Find a better one.

How long did Sky TV take to turn a profit??

Or sticking closer to residential property, how about retirement villages. They are structurally loss making but cash flow positive in many situations.

[Gatekeeper]

How long did Sky TV take to turn a profit??

Note sure, but I know they didn't pass losses to shareholders to reduce their tax while they were making them.