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Our next meeting is being held at the Ocean Lodge Muritai St THURSDAY 22nd June. We are flying in Andrew King from Auckland to speak. Andrew is the Vice President of the Federation, President of the Auckland PIA, founder editor of the first New Zealand wide Landlords magazine in New Zealand, property coach, and a residential property investor. What’s more he is one of our own having been brought up in Nelson. There are storm clouds on the political and economic front with some nasty legislation being pushed by strange people. Andrew is out there in the front lines representing us. The meeting proper commences at 7.30 pm with the ever popular meal at 6pm when you will have the opportunity to chat to other investors.
RSVP to Glenn for the meal please (Ph 03 547771
THE MARKET
Well we are now in the middle of winter and traditionally this is the quiet time of the year. I have not noticed any let up in the demand with strong interest in all grades of properties. Despite this strong demand I never the less occasionally get a property that sticks and sits empty for a week or two. I actually cannot determine any pattern that indicates why this should be. One clear thing that is showing its head is the appearance of professional rent evaders from other cities. In some cases these people have been encouraged by WINZ to come to Nelson for work. I have found the best way to counter this problem is to increase the bond to the maximum of four weeks for all high-risk tenants. Make sure you carry out credit checks on all tenants even if they look and sound lovely.
CHANGES AT TENANCY SERVICES
Jeff Montgomery the Operations Manager Tenancy Services outlined the changes that they are introducing at our last meeting. Things are being improved, he says, by halving the staff at Nelson Tenancy office, reducing the hours that they open, and making face to face access for advice by appointment only. The Department of Building and Housing have sent me emails, letters and a huge document called the “Statement of Intent 06/09” detailing these changes. Their objective grade of service to provide mediation is being reduced from the present 7 working days to 10. Tribunal applications will only be able to be made by posting them to PO Box 50 546 Porirua or faxing them to 04-237 1058. Delivering them to the Nelson Tenancy Office will no longer be permitted. Naturally if the postal option is used then you need to add perhaps another four days for delivery of documents as per prescribed in the RTA. No stated time limit is given for this delivery period. What is clear is they are using a new form for tribunal applications. Two different forms have been created one for tenants and one for landlords. It is not specified if the same fee applies for both forms. It does seem strange and suspicious that they were unable to show us the forms at the meeting. They have however said that new RTA regulations are being issued and signed off by the Minister of Housing before they can use the forms. To me this signals some change in their charges. Meanwhile we will just have to wait and see. Addendum 3/6 (I have now got a copy of the new forms and the fee is unchanged)
Despite all this paper it was not clear to me how to pay for the new forms. Telephone calls have confirmed that the present system of payment at Westpac Bank or pre purchased vouchers from Wellington will still apply. The call centre staff and their superiors are uncertain if a “Word” template file of the new application forms will be made available for property mangers as at present. At present Tenancy Services email property managers all appointments for mediation. This facility aids administration of ongoing and complex drawn out cases. I have been unable to determine if this good service will continue. The new forms are being introduced on 19 June. They tell me they will be available on 5 June. They aim to resolve 5% of cases by telephone mediation within 24 hours. No objective time has been set down for when this service will be available to the rest of the country apart from Auckland where it is already in use.
Despite requests for clarification they have not specified how the centralised mediators will cope with different courts around New Zealand having different interpretations of the RTA. Further changes are a foot with online applications and associated online payment being provided from August. The only method of payment online will be by credit card. Again we have to wait and see how they propose to operate this system and how other documents, that are legally required, can be attached to a form sent by email.
This newsletter has been sponsored by SBS. Proud to be a Building Society not a Registered Bank.
I have asked Jeff for clarification of why the courts around the country have different interpretations of the law, specifically related to water charges, and pointed out that this is creating contempt of the law. His response was “Hopefully this issue will be resolved through the RTA Review, but in the meantime I have forwarded your concerns through to Trish McConnell, Principal Tenancy Adjudicator. She will be in contact with you soon.” As the saying goes the jury is still out on this issue. The “soon” has not as yet become “now” and I am still waiting.
The Call Centre Manager has phoned me to say his staff are now quoting section 15 and not section 43 when the management of a property changes. The call centre staff had been telling tenants that they must get a letter from the previous landlord / owner when management changed as per prescribed in section 43. I brought this issue to Jeff’s attention when he visited. Hopefully us property managers will no longer be faced with difficult tenants refusing to pay us and not wanting to have a change of property manager when it suits them. Don’t you just love em.
THE GREAT CHATTLE DEPRECIATION GAME IS OVER
Your attention is drawn to the article attached reproduced with permission of The NZ Institute of Chartered Accountants. The IRD have decreed that residential property fit outs listing non-load bearing walls; plumbing and electrical wiring can no longer be separately depreciated at an accelerated rate. So take note you keen investors of negatively geared properties (ones that make a paper loss). The tax savings against other income achieved by massive depreciation losses is ending. An amnesty has been granted for this year to get your books in order. Do it later or not at all and you run the serious risk of penalties going back several years. For some property investors this might be a ruinous outcome bringing misery and poverty after several years of living off the fat of the land. Only a fool would ignore the possibility of IRD presenting you with a demand for say $100,000 or what ever they feel like.
CONGRATULATIONS PAUL
Nelson PIA extends our congratulations to Paul also.
Harcourts Nelson Business Owner, Paul Hedwig has been inducted into the Harcourts Hall of Fame as one of only eight members since it was launched in 2000 to recognise those who had made a significant contribution to the Harcourts brand. Paul has quietly supported NPIA for the past 20 years.
CONFERENCE 2006
I hear tell several of our members have already signed up to go. The NZPIF Conference is a Conference for everybody with an interest in Property Investment - no matter what their level of investment or expertise is. It is a forum for sharing practical investor knowledge, getting an up to date commentary on some political & economic environmental issues, some networking, a bit of inspiration from our keynote Speaker Dolf deRoos, and lastly, an excuse have a bit of fun!
The format of the Conference will include plenary and a number of breakout workshops. The workshops range from Property Investing 101 (for the new investor), to Understanding Property Due Diligence, and Tenancy Legislation and through Wealth & Retirement streams. More importantly, sessions are being carefully planned so you do not come away with your head spinning at the end of the day!
2006 NZPIF Conference Registration
All Conference Information including Registration forms and accommodation options is primarily available online at www.homelet.co.nz/nzpifconference.htm which can be found on the NZPIF Web site www.nzpif.org.nz – simply follow the links.
TENANT CHECKS
Even Trish McConnell the Principle Tenancy Adjudicator has put her name to the people encouraging landlords to choose your tenants carefully. Unfortunately this is easier said than done and takes no account of how people can change. If you are a current finacial member of NPIA (like you have paid $140 this year) you can have access to Baycorp with no annual fee. I have an E-application form I can send to you if you are not yet on line.
Things to look for on those credit checks are the previous addresses where the tenant has lived. If they say they have lived at their current address for the last 2 years there has to be a reason why they used a different address 6 months ago when seeking credit. They might not be lying to you about where they have been living but they may have lied to someone else. With the new privacy laws you may have trouble tracking down an absconding tenant some time in the future if your Baycorp credit check file is not sitting ready to be activated for tracking past tenants.
Earn yourself $40 by referring your tenants to Mr Rentals for their appliances and gym equipment.
Disclaimer. Anyone stupid enough to act on advice or comments in this newsletter without thinking for themselves deserves to suffer the consequences.
4/06
Tax Depreciation Treatment of Residential Rental Properties and Building Fitouts
22 May 2006
There is presently uncertainty as to the extent to which different parts of a residential building (in particular things that are integral to the building structure such as electrical wiring, plumbing, internal walls, but excluding things normally regarded as chattels such as an electric stove or carpet) may be depreciated for tax purposes using the building fit-out asset category. Many of you will be aware that Inland Revenue has concerns about the treatment of building fit out components for residential rental properties. In particular when the costs of the components have been split out, such as the electrical wiring, plumbing, and internal walls, and depreciated separately.
Because of the uncertainty stemming from Inland Revenue's concerns in the application of the depreciation rules for building fit out expenditure, the Institute has asked for clarification of Inland Revenue's position, and what the Inland Revenue approach to the issue will be.
Inland Revenue have advised that its view is that the asset is the entire building and it is not acceptable for taxpayers to break up residential properties into smaller components in order to obtain higher depreciation rates. The Commissioner advises that his approach is:
- The better view of the law is to apply depreciation to the combined asset (i.e. the building) and not to accept the practice of "breaking up" rental properties into smaller components in order to obtain the higher depreciation rates listed under the "Building fit-out (when in the books separately from building cost)" asset category.
- Taxpayers who have been using the component approach will be required to add the value of the various "components" they have been depreciating individually into the cost of the building and also combine the depreciation claimed for those individual assets. This will identify the asset to be depreciated, the cost of that asset and the depreciation claimed to date. They should then use the building depreciation rate to claim depreciation for that asset.
- Taxpayers will be required to take this approach from the first available income year (the earliest period for which no return has been filed or assessment issued).
- Taxpayers will not be required to adjust previous income years. Should the asset be sold or leave the tax base for some other reason - such as a change in use - any depreciation that had been over-claimed as a result of using the incorrect building fit out depreciation rates will be corrected as a result of the adjustment required by section EE 41 of the Income Tax Act 2004.
- For cases still under investigation, or proceeding through the disputes process, Inland Revenue will consider allowing the taxpayers to take up the Commissioner's approach to settle the matter. A taxpayer may of course decide not to settle and to take the matter through the disputes process if they do not agree with the Commissioner's treatment.