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  1. #11
    Join Date
    Mar 2007
    Location
    Auckland
    Posts
    3,017

    Default

    Well John, their findings are in error. I run seven residential rental properties, I do make a cash profit on renting out these properties and therefore I do pay income tax on this profit.
    So that immediately shoots down their argument. Someone (i.e. me ) does pay tax in the residential property sector.
    Even if I am the only person in NZ doing this there is some tax paid, so on this point they are wrong.

    As with most commentators on the property market they are confusing speculators with investors. Investors (and I am one) pay tax on their rental profits. Speculators who buy and sell with the intention of making a capital profit are liable for tax on that profit under current taxation law. If they do not pay that tax, that is a fault in the current operations of IRD not a fault in the way the tax law is structured. Rather than try and change the law, they should concentrate on the enforcement of the tax law as it currently exists.

  2. #12
    Join Date
    Sep 2008
    Location
    Tauranga
    Posts
    1,518

    Default

    Well what about the people who,lease expensive cars to lower their taxes or who have even bigger mortgages on diary farms to hide their taxes and gain capital earnings?
    The problem has only become what it is since that tyrant Herr Helen decided that we will all pay more tax just because she could and didn't see why everyone else shouldn't. Change the tax rate back and solve the issue.
    tax at 25 - 30 % is acceptable and is sufficient for most people to be happy to pay.
    It won't matter what else they do in terms of growing the tax base we will find a way around it. Muldoon tried all these things and failed. Govt's forever have been trying new schemes to collect tax and continue to fail forever penalizing those that cannot defend their tax payments.

    The greatest leap forward we ever did was once the tax rates were lowered by Douglass and Richardson and all that has been undone bby Bolger and Clark.
    We need to prune govt. spending way down and allow people to regain their spirit and strive and achieve without being over ridden by the state.
    But don't expect university troughers to understand the average working man and his family. They just never will. Too much bad education stuffed into their heads.
    Last edited by revdev; 06-10-2009 at 08:45 PM.

  3. #13

    Default

    "Recent data show that revenue from the approximately $200 billion rental property sector is negative and has trended downward since the introduction of the 39% tax rate in 2000," the working paper says. "The glaring hole in the current tax system is the rental property sector.
    "There are efficiency and equity problems with the different treatment of savings in the form of bank accounts, and savings in the form of rental property."
    Under an RFRM tax, "rents from land would not be taxed, and other expenses relating to the investment would not be deductible, but a risk-free rate of return would be applied to the net equity in the property and included in taxable income".
    Findings are merely stating facts and are not in error.

    The fact that you aren't making use of the 'hole' in the tax law does not mean the hole does not exist.

  4. #14
    Join Date
    Mar 2007
    Location
    Auckland
    Posts
    3,017

    Default

    There is actually no loophole just for property investors.

    There does exist a general ruling in tax law that if you do purchase a capital asset (a farm, a machine, a property) in order to use that capital asset as part of a business to derive a taxable income and eventually when you finally dispose of that capital asset you are able to sell it for a price that is higher than your original purchase price, that is deemed to be an 'accident' and is treated as a non-taxable capital gain.

    Thus a farmer who farms for many years and finally sells his farm on retirerment does not pay tax on the capital gain, an entrepreneur who builds up a successful company (Orcon, TradeMe, Kathmandu) and then sells out does not pay tax on the capital gain, a motel or hotel owner who retires from the business does not pay tax on the capital gain.

    When these people say "We want to remove the special tax loopholes for property investors" what they are really saying is "We want to introduce special tax penalties for property investors that will not apply to anyone else".
    That is a valid point of view that can be argued out, but they should state what they really intend rather than hide it behind untruths.

  5. #15
    Join Date
    Sep 2004
    Location
    Hastings
    Posts
    14,834

    Default

    Quote Originally Posted by JohnJackson
    Can someone please explain how these findings are 'disinformation'?
    First, let me ask you if you remember the government issuing
    lifetime drivers' licenses that lasted for how long, exactly. . . . ?

    Second, the way the superannuation surcharge was promised
    to go and . . . ?

    I can’t find it, so maybe you can you tell us what the terms of
    reference are for the TWG?

    And including the IRD in the TWG!? Jees, that’s like having mostly
    foxes in the hen delegation to the NAWAC (National Animal Welfare
    Advisory Committee) on battery cages. (It’s hard for the foxes to
    get through the wires)
    Quote Originally Posted by Perry
    I still think the disinformation is by design, is aimed at the vacuous
    and gullible media and even less savvy populace, and may well be
    part of a craftily-hidden agenda.
    Quote Originally Posted by JohnJackson
    Can someone please explain how these findings are 'disinformation'?
    Sure. Lets start here:
    The $200 billion rental property sector not only pays no tax, but
    is actually getting refunds when it might fairly be contributing tax
    of $500 million to $900 million a year, says a report from the last
    meeting of the influential Tax Working Group.
    Pays no tax? That's an unambiguous statement and it's false.

    Well, I never . . . I can tell you that I/we pay tax on all rental income.
    Yet the TWG says otherwise. Who do you trust? Me? Other PIs?
    Your own experience, if you’re a PI? Your common sense or . . . . ?
    Quote Originally Posted by JohnJackson
    It is a research group working with Victoria university who are
    objectively reviewing our taxation system, its about as good/clean
    as information in this country can get.
    And your evidence in support of that is . . . . ?

    Information isn’t always and every way the issue. It’s the spin that’s
    put on it. Refer to the TWG quote above.
    Quote Originally Posted by JohnJackson
    Rental owners expect not to pay capital gains tax, yet are happy
    to claim tax back for paper depreciation and net losses from
    deliberately negatively geared rentals.
    Guess what? Any business of any sort in NZ can claim a tax refund
    on an operational loss.
    Quote Originally Posted by JohnJackson
    You make money in NZ, you should pay tax on it like all other
    sectors. IRD records show they in fact lose money to the rental
    market.
    And your evidence in support of that is . . . . ? Or do you take the
    fox-in-the-henhouse’s word for that? Which of your IRD sources/
    contacts can I contact to get a refund from for the income tax paid
    on my/our rental income?

    And BTW - do you suppose ‘the rental market’ includes HCNZ?
    Quote Originally Posted by JohnJackson
    It is a hole. It has now been highlighted by this group in the aim of forming a 'world class tax system' one of John Keys main objectives since coming to power.
    Excuse me, I’m struggling to maintain my composure.
    “World class” from just whose perspective, I wonder? The only
    hole evident is the lack of understanding of reality. By many
    people. What we have here is akin to a group of convicted
    criminals making up the jury in an aggravated robbery trial.

    Following this is the membership list for the TWG. Go down and
    tick off those who don’t make their money from:

    • the government
    • tax accountancy
    • tax law.

    Let us know how many are left and what they are as a percentage
    of the TWG?
    The TWG, which comprises individuals from the private sector and
    academia and also includes tax policy officials from the Treasury
    and Inland Revenue, has the following membership:

    Bob Buckle, Faculty of Commerce and Administration, VUW (Group Chair)
    Rob Cameron, Cameron Partners
    Paul Dunne, KPMG
    Arthur Grimes, Motu Economic and Public Policy Research
    Rob McLeod, Ernst & Young
    Gareth Morgan, Gareth Morgan Investments Limited
    Geof Nightingale, PricewaterhouseCoopers
    Mike Shaw, Deloitte
    John Shewan, PricewaterhouseCoopers
    Casey Plunket, Chapman Tripp
    John Prebble, Law School, VUW
    Mark Weldon, NZX Limited
    David White, Centre for Accounting, Governance and Taxation Research, VUW

    Members from Inland Revenue Department
    Matt Benge
    David Carrigan
    Robin Oliver

    Members from the Treasury
    Norman Gemmell
    Michelle Harding
    Bill Moran

    In addition, experts in various areas have been invited to attend some sessions:

    Len Burman, Syracuse University, New York
    Andrew Coleman, Motu Economic and Public Policy Research
    Peter Conway, New Zealand Council of Trade Unions
    Lew Evans, Victoria University of Wellington
    Phil O'Reilly, Business New Zealand
    Susan St John, The University of Auckland
    Have you any idea of the difference between the key aspects of
    National’s perspectives and plans on ‘climate change’ when in
    opposition and now they’re in power? To call them liars would be
    euphemistic. Standard political malfeasance.

    In her book, Tax Wealth & Equity (sub-titled What your accountant
    [and the government] doesn’t tell you) accountant Fiona Clayton-Law
    says this:
    The government tells you to save as much as you can - I will show
    you why saving money in the bank for your retirement and paying
    off your mortgage is a sure-fire recipe for financial disaster.
    Look around PT for clues about certain realities. Try the Capital
    Gains thread if you’ve several hours to pass. Although he’s not
    been able to provide the reference yet, be sure to read Dean’s
    reference to a government-sponsored scheme called kiwisaver.

    Since composing the reply above, I note that there has been the
    following addition to the thread:
    Quote Originally Posted by Flyernzl
    Well, their findings are in error. I run seven residential rental properties;
    I do make a cash profit on renting out these properties and therefore
    I do pay income tax on this profit.
    Your reply seems to avoid an apposite response to that, in relation
    to the claims made by the TWG, which I've quoted earlier in this
    post. Why?

    For the avoidance of doubt:

    Does the $200 billion rental property sector pay no tax
    or does it pay income tax on rental income? Yes/No
    are the available answers, there.

    The nub of the response is simple: if the answer is 'yes,'
    then the TWG are liars - plain and simple. Further, if 'yes,'
    then, to borrow a phrase from Mitre 10: "end of story!"
    Last edited by Perry; 06-10-2009 at 11:10 PM.
    Want a great looking concrete swimming pool in Hawke's Bay? Designer Pools will do the job for you!

  6. #16
    Join Date
    Feb 2004
    Location
    North Waikato
    Posts
    651

    Default

    I'm not aware of any glaring holes. If you are trading, you should be paying tax on the profits.

    If you are a long term investor, the tax is paid based on the same formula as all companies. Profit = income less expenditure less depreciation of assets. Depreciation, although a paper item, is very very real for long term investors. If you are paying someone else to do it, a major refurbishment every 10 to 15 years is $20 to $30K. At some stage the roof needs replacing. Sometimes repiling is necessary. All these things are what depreciation is about and they are very real expenses. If the depreciation rates are too generous, they can be changed.

    To accuse and then develop a different tax system for rental properties verses all other companies sounds like a tax grab.

    If an investor invests in something that is really making a loss, just to save paying tax on their other income, I'm available to pay them 39 cents for every dollar they give me. If its a cash loss before depreciation, it really is a case of losing a dollar to gain 39 cents. If they think the depreciation part is 'free' tax relief, then they obviously have not owned a rental for long enough.

    John
    Last edited by revdev; 06-10-2009 at 10:13 PM. Reason: clarity

  7. #17
    Join Date
    May 2008
    Posts
    3,557

    Default

    "Recent data show that revenue from the approximately $200 billion rental property sector is negative and has trended downward since the introduction of the 39% tax rate in 2000," the working paper says.
    When Helen Clark upped the tax rate to 39%, she helped the negative-geared investor.
    If we want to discourage negative-geared property investing then the answer is simple - reduce the tax rate.
    But no, let's look at CGT and a few other silly ideas and employ a few more academic consultants....

  8. #18

    Default

    Does the $200 billion rental property sector pay no tax
    or does it pay income tax on rental income? Yes/No
    are the available answers, there.

    The nub of the response is simple: if the answer is 'yes,'
    then the TWG are liars - plain and simple. Further, if 'yes,'
    then, to borrow a phrase from Mitre 10: "end of story!"
    The rental property sector as a whole operates at a loss so receives tax payer dollars as opposed to paying a net positive tax revenue to the IRD.

    So if we draw a big circle around all rental owners and talk about them as one single entity, then NO, there is no tax paid. Worse still the net loss gets subsidized by the tax payer.

    A business needs to have the intention to operate at a profit. This is not the case with the rental sector as a whole. Using business tax law on the rental sector is the problem, and this is what will be addressed in the next budget.

  9. #19
    Join Date
    Jan 2004
    Location
    Whangarei
    Posts
    5,867

    Default

    Quote Originally Posted by JohnJackson
    A business needs to have the intention to operate at a profit. This is not the case with the rental sector as a whole.
    While I agree, I think that it needs to be made clear that this hasn't always been the case. It used to be a lot harder to buy property to the point where they *had* to pay their own way. The real problem is not residential property investment as such but lending practices. We actually need property investors, unless you like the idea of the state providing more housing. Increasingly lax lending criteria has allowed many to borrow to fund unviable investments. So why is that not being addressed as the real problem? So many are blindly blaming investors instead of the cause of the boom in property investor numbers. The stupidity of a capital gains tax is that it's just another reason to hold on to property!

  10. #20
    Join Date
    Mar 2007
    Location
    Auckland
    Posts
    3,017

    Default

    As I'm a simple guy, I'm getting lost in some of the detail above.

    My own view is that the residential rental property market as it is currently structured is unstable. It costs someone less to rent a property to live in than it does to buy that property and pay all the costs on it.

    It never used to be like this, and there is no reason why it should be so. After all, if you go and rent a car you expect to pay a higher cost per day than if you own that car. You are paying for the convenience aspect and everybody accepts that it should be so. Why should housing be different?

    It didn't use to be the case - back in the 1950s - 1960s you could buy a house with a sizeable mortgage on it, pay the other bills, and still make a trading profit on the rental income. Things have changed. So why do people buy a house and rent it out at a loss? Not just to save tax (I'd sooner pay tax on a profit than lose money on a loss). It's because they have an expectation of a capital gain. Remove the capital gain either through price stability or through taxation and you remove this incentive. Right now, many Landlords are subsidising the living costs of their tenants, sometimes by hundreds of dollars per week. Very generous of them.

    So then, what would be the outcome of no capital gain in this situation? Certainly a lot less residential property available to rent. So rents would rise. As a lot (most?) tenants are on some sort of social welfare/family support presumably these payments would need to be increased to cover the higher rental levels. In this case is it conceivable that any revenue derived from increased taxation on the property owners would be recycled back to them via higher DSW payments to their tenants.

    The law of unintended consequences strikes again.


 

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