Ring Fencing Matters

[Chris W]

116,000 loss-making rental property owners may sell

[Wayne]

Confirmation from Inland Revenue last week that 116,000 owners declared a loss on earnings in the 2016/17 tax year shows that ring-fencing of tax losses for rental properties could soon result in 116,000 fewer rentals, Tenancies War spokesman Mike Butler said today.

Unfortunately to suggest that there may be 116,000 less rentals puts him in the standard media exaggeration league.

[Chris W]

Unfortunately to suggest that there may be 116,000 less rentals puts him in the standard media exaggeration league.

The author is part of a group lobbying to oppose the bill. He is taking the extreme position to make the issue important to parliamentarians.

For those who are negatively geared, they might want to join the lobby group.

[Wayne]

The author is part of a group lobbying to oppose the bill. He is taking the extreme position to make the issue important to parliamentarians.

For those who are negatively geared, they might want to join the lobby group.

I know who he is.
Taking extreme positions can easily negate you argument or make it seem silly.

[artemis]

I have prepared a short ring-fencing submission to the Select Committee. Not sent yet, have another couple of weeks before submissions close. Making 3 points and comments welcomed:

1. Has the SC obtained better information now on supply / demand implications of this policy. Because what was available previously (Treasury / IRD Regulatory Impact Statements) it is clear that there is uncertainty about impacts of the change on markets. Since the most recent RIS was December 2018 and uncertainty still noted as the key risk, seems unlikely more is known. The residential market is huge, any change can have quite serious aftershocks.

2. How is it fair that an investor with only one rental property, a portfolio of one, forfeits losses carried forward if they sell. (I know they can hang on to the losses in case they buy another rental one day, but why would they in the current hostile climate.)

3. How is it fair that only one sector is targeted. Not commercial property. Not the tradie or anyone else for that matter setting up a business quietly alongside the day job.

[Perry]

Thanks for the insights, Artemis.

1. Has the SC obtained better information now on supply / demand implications of this policy. Because what was available previously (Treasury / IRD Regulatory Impact Statements) it is clear that there is uncertainty about impacts of the change on markets. Since the most recent RIS was December 2018 and uncertainty still noted as the key risk, seems unlikely more is known. The residential market is huge, any change can have quite serious aftershocks.

I wonder if "aftershocks" should be more specific? E.g.

The residential market is huge and any changes can have serious consequences such as:

* reducing the supply of residential rentals requiring more expensive, motel emergency accommodation with concomitant pressures on the government's budget;

* increasing the price of rents as demand exceeds supply;

* potentially creating more 'homeless' people.

Also, statistics indicate a higher person occupancy rate in residential rentals, compared to owner-occupied dwellings. If those statistics are correct, for every 100 residential rentals sold to owner occupiers as a consequence of this policy proposal, 180 tenants will de facto, be de-homed.

2. How is it fair that an investor with only one rental property, a portfolio of one, forfeits losses carried forward if they sell. (I know they can hang on to the losses in case they buy another rental one day, but why would they in the current hostile climate.)

Fair is so subjective, especially in the eyes of the W'gton woodenheads.

3. How is it fair that only one sector is targeted. Not commercial property. Not the tradie or anyone else for that matter setting up a business quietly alongside the day job.

Why is only only one sector of NZ businesses is targeted? The gov't already has some difficulty persuading those involved that it is "business friendly." Why not also target anyone setting up (or buying into) a business that requires PAYE income from other sources to maintain the business viability in the early stages?

[Don't believe the Hype]

Artemis - something to consider... this might help FHB's but it will have a significant negative impact on renters

The data I saw somewhere maybe in above linked articles showed an average of $7100 annual losses. With the average rental being $550/wk and the top tax bracket of 33% this is the equivalent impact of 4 - 5 wks rent. We recently saw a rent spike when the cost of letting fees equivalent to 1 wks rent for those landlords who use a PM and that PM charges a fee (not all did). What sort of rent spikes can we expect when landlords face a cost hike of 4 - 5 times the cost hike imposed with the abolition of letting fees recently.

[Perry]

The data I saw somewhere . . . .

It was in this recently posted item.

The response to my request under the Official Information Act also said that the average loss declared by each owner was $7138, and that includes both individual and non-individual (trusts, partnerships and companies) taxpayers, Mr Butler said.

[Perry]

The other item DBTH posted today demonstrates what is happening, or can / will happen.

---

Warning: Wellington tenants will feel the pinch
14 Feb 2019

The pressure is going on Wellingtonians looking for a house to rent. The city's average asking rent on Trade Me has hit a record $595 a week, $45 more than rent in Auckland city. Trade Me's head of rentals, Aaron Clancy, said rents had "exploded" in the capital in recent months. "It's a simple supply and demand equation - the supply around Wellington is just not keeping up and it's even tougher at this time of year as students move back for the university year and ramp the demand up further."

[flyernzl]

Auckland PIA have just published a guide to help investors make submission on the proposal to ring-fence rental tax losses. I would be very grateful if you would share this guide on your social platforms and distribute this information to all your friends and contacts to bring about more awareness. There are 13 days left to make submissions. It would be great if we could mobilise as many investors to speak up as possible. Thank you very much in advance!

Follows:

The Government wants to ring-fence rental losses. What can we do about it?
Make a submission of course!

Let's be clear. At the time of this piece, ring-fencing is not a done deal. There is still time to push back and affect the Government's legislative agenda. Submission on this issue closes 28th February 2019.

It is our opinion that, in its present form, the proposal will have far-reaching consequences many of which are unfavourable to investors, their tenants and the property market as a whole. Whether you agree with this view or not, something this consequential should not have its details and nuances decided on by a selected few. Making a submission to have your views considered is absolutely warranted. You can do so here. The substantive part of the submission template involves only two text boxes. It can't get easier than that.

We have produced this guide to help investors understand the issues and make a submission. The guide includes additional readings for anyone who has a particular interest in the matter. For those investors who are time-poor, we suggest prioritising sections 5 and 6.

Many investors are rightly concerned about what is being proposed. Remember, you do yourself a disservice if you do nothing and say nothing. We are fortunate enough to live in a country that cares to listen to anyone who is willing to speak up. Don't squander the gift of civic participation. There are tens of thousands of investors in this country, imagine the awesome power we can wield if we all do our part and speak up now.

You have until 28th of February to be part of this movement. Make your submission today!


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Please treat this matter as urgent, and distribute as widely as you can.

[Wayne]

What sort of rent spikes can we expect when landlords face a cost hike of 4 - 5 times the cost hike imposed with the abolition of letting fees recently.

The loss is not a 'cost' - it is a deferment.
When the person gets to claim the accumulated losses against their profits will they return the recovery of those previous 'costs' back to the renters?
No - they will double dip.

[Perry]

What sort of rent spikes can we expect when landlords face a cost hike of 4 - 5 times the cost hike imposed with the abolition of letting fees recently.

The loss is not a 'cost' - it is a deferment.
When the person gets to claim the accumulated losses against their profits will they return the recovery of those previous 'costs' back to the renters?
No - they will double dip.

I'm confuddled.

What is it that you two are emphasising?

[Wayne]

I'm confuddled.

What is it that you two are emphasising?

Me?
I'm wondering why people keep saying that ringfencing of losses creates a 'cost' that needs to be recovered via rent.
It isn't a 'cost' but a deferral of the claim against future profit.
If you claim it as a cost now against rent then profits should be given back to the tenant - fairs fair.
The full quote I was replying to was

Artemis - something to consider... this might help FHB's but it will have a significant negative impact on renters

The data I saw somewhere maybe in above linked articles showed an average of $7100 annual losses. With the average rental being $550/wk and the top tax bracket of 33% this is the equivalent impact of 4 - 5 wks rent. We recently saw a rent spike when the cost of letting fees equivalent to 1 wks rent for those landlords who use a PM and that PM charges a fee (not all did). What sort of rent spikes can we expect when landlords face a cost hike of 4 - 5 times the cost hike imposed with the abolition of letting fees recently.

[Perry]

If you claim it as a cost now against rent then profits should be given back to the tenant.

I thought that a proper evaluation of income and expenses would be reflected in the initial rent figure?

But - W'gton? - maybe there's an element of opportunism? (Is it fair to call it that, anyway?)

It begs the question of ROI versus ROM [Return on Market prices]?

Think of ratchet clauses in commercial leases.

The gummint and councils have much to answer for.

It's a weird world.

[Don't believe the Hype]

Me?
I'm wondering why people keep saying that ringfencing of losses creates a 'cost' that needs to be recovered via rent.
It isn't a 'cost' but a deferral of the claim against future profit.
If you claim it as a cost now against rent then profits should be given back to the tenant - fairs fair.
The full quote I was replying to was

it’s only a deferral of cost if you hold the asset long enough to turn a profit (not a capital gain).

If it was simply a deferral and net no change why would a government waste tax payers money to contemplate, debate and implement such a zero sum program?

of course this is about grabbing cash - it has zero negative impact on me. In fact implementing this ring fencing is likely to raise rents driving my already cash flow portfolio into a higher positive position so frankly I don’t care if they implement or not but if they do I’ll profit more than I do now