• Login:
Welcome, Register Here
follow PropertyTalk on facebook follow PropertyTalk on twitter Newsletter follow PropertyTalk on LinkedIn follow PropertyTalk on facebook
Results 1 to 7 of 7
  1. #1
    Join Date
    Sep 2003
    Location
    High up above and deep down under
    Posts
    10,915

    Default Rental Property Review

    Hi Guys

    Rental property review

    06.03.2004 - By BRIAN FALLOW
    The Government is looking at the depreciation of rental properties for tax purposes as part of a general review of the depreciation rules, Finance Minister Michael Cullen said yesterday.

    After a speech to tax practitioners in Christchurch outlining the Government's tax policy agenda, Cullen ruled out any capital gains tax or wealth tax for investment properties.

    But PricewaterhouseCoopers tax partner John Shewan said Cullen told the gathering that one area where preliminary work was being undertaken was the issue of depreciation of rental properties.

    "What he is getting at there is whether it is appropriate that rental properties should be depreciated when over the last few years the market would imply they don't depreciate. If anything they go up in value."

    Turning to the vexed issue of the taxation of investment vehicles, Cullen indicated that the Inland Revenue's proposal before Christmas to adopt a version of the risk-free rerun method (RFRM) advocated by the McLeod review for overseas portfolio investment had been put on hold.

    He said the savings industry was keen to consider whether a version of the risk-free rate of return method could be developed to tax the investments of domestic savings entities as well.

    Under the RFRM method tax would be payable on a standard return of 4 per cent of the value of the investment at the start of the year, whether they received any income for the investment or not.

    Cullen said he could see no sense in existing rules which taxed an individual on accrued capital gains on investment in most countries but imposed almost no tax on such investment in a few selected countries - those on the favoured "grey list".

    "Nor can I see any sense in rules that penalise investors using savings intermediaries especially if the funds are actively managed and based in New Zealand rather than offshore."

    He made it clear he was not wedded to the RFRM approach. "If there are better options please raise them. But remember that viable options must continue to raise tax revenue and not penalise investment in our own country."

    Cullen is prepared to accept a delay in overhauling the foreign portfolio investment regime only if the hole in the revenue bucket posed by Australian unit trusts can be plugged soon.

    They work like this: A New Zealand resident buys units in an Australian unit trust which uses those funds to buy, for example, NZ Government bonds.

    Interest from the bonds is paid to the Australian unit trust, with only a 2 per cent levy deducted.

    Because Australia taxes the entity as a trust rather than as a company, the interest is not taxed in Australia because it is not sourced in Australia and does not relate to an Australian beneficiary.

    Regards

  2. #2
    Join Date
    Jan 2004
    Location
    Whangarei
    Posts
    5,867

    Default

    eeep!

  3. #3
    Join Date
    Feb 2004
    Location
    Welly-town
    Posts
    1,095

    Default

    The other angle on depreciation is that rather than assume an asset is worth less as time goes on, that by investing money (from depreciation) you can maintain the condition and usefulness of that asset at a similar level for a lot longer then its expected lifespan.

    Any government that doesn't want housing standards maintained is asking for trouble!

    As a matter of interest, is there anyone out there who does not deprecite building and chattels? What is the reason?

    Gerrard

  4. #4
    Join Date
    Oct 2003
    Location
    Dunedin
    Posts
    607

    Default

    What he is getting at there is whether it is appropriate that rental properties should be depreciated when over the last few years the market would imply they don't depreciate. If anything they go up in value
    To scrap depreciation is an interesting concept.

    First, his assumption is that property ALWAYS appreciates in value.
    How naieve! Property doesn't always appreciate as sometimes we see a real decrease in property values (ie 1991 and 199.

    Second, I would happily welcome the abolition of depreciation anyway. I always welcome the opportunity to be genuinely countercyclical. These opportunities only present themselves infrequently and are often 'disguised' as bad news for property investors.
    Imagine how all those investors with negatively geared portfolios would react! I imagine many investors would quickly exit the market as a result of the abolition of depreciation creating buying opportunities that currently don't exist.

    Values would temporarily drop but in time would recover and continue to grow as capital growth has little if anything to do with depreciation!
    I say little because there is certainly some extra demand for property as a result of favourable tax laws therefore depreciation is partially responsible for some capital growth. The question is just how much capital growth is due to depreciation? All those who think depreciation is critical to capital growth may not be interested in property investment if depreciation is scrapped. I for one still will be!

    The strength of the case for investing in positively geared properties is only reaffirmed.
    Kieran Trass

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

    Default

    On that second point... any change in depreciation rules or capital gains tax would create a glut of properties being dumped on the market and reduce the number of houses for rent which would in turn put pressure on the Government to provide more state housing. I doubt it's a landslide they are willing to set in motion...

  6. #6
    Join Date
    Oct 2003
    Posts
    3,578

    Default

    Quote Originally Posted by drelly
    On that second point... any change in depreciation rules or capital gains tax would create a glut of properties being dumped on the market and reduce the number of houses for rent which would in turn put pressure on the Government to provide more state housing. I doubt it's a landslide they are willing to set in motion...
    Alternatively, it will put rents up. Depends on supply vs demand of rentals at the time it occurs.

  7. #7
    Join Date
    Jan 2004
    Location
    Whangarei
    Posts
    5,867

    Default

    Alternatively, it will put rents up. Depends on supply vs demand of rentals at the time it occurs.
    That could also happen which would put even more pressure on the Govt for cheap housing!


 

Thread Information

Users Browsing this Thread

There are currently 1 users browsing this thread. (0 members and 1 guests)

Similar Threads

  1. Replies: 23
    Last Post: 09-08-2015, 02:00 PM
  2. Zirakpur property Review
    By Jagroop in forum Property Investment (Asia)
    Replies: 1
    Last Post: 05-10-2013, 06:56 PM
  3. Office rental on review
    By ryan12345 in forum Commercial Property (NZ)
    Replies: 3
    Last Post: 24-03-2011, 05:44 PM
  4. Housing NZ rental review
    By Cookielooks in forum Property Investment (NZ)
    Replies: 1
    Last Post: 28-09-2009, 02:46 PM
  5. 1st property to be a rental property, LAQC or not, newbie question
    By nintiger in forum Finance, legal and tax (NZ)
    Replies: 15
    Last Post: 16-03-2009, 12:43 PM
  6. Property managers review underway
    By Marc in forum Property Investment (NZ)
    Replies: 0
    Last Post: 15-02-2009, 08:51 AM
  7. Latest national property market review. Aug 08
    By muppet in forum Property Investment (Oz)
    Replies: 0
    Last Post: 12-08-2008, 07:37 PM
  8. PT Review June ed NZ Property Mag
    By muppet in forum Property Investment (NZ)
    Replies: 10
    Last Post: 07-06-2005, 12:25 PM

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •