Monday 15 May 2017 06:44 AM
Labour to 'ring-fence' property investor losses to close tax loophole
By Pattrick Smellie
May 15 (BusinessDesk) - Property investors will no longer be able to offset income in other areas against losses declared on residential property investments under new tax policy worth around $150 million a year and announced by Labour leader Andrew Little at the party's last national congress before the Sept. 23 general election.
Speaking in Wellington, Little announced a widely anticipated crackdown on so-called 'negative gearing', where costs such as interest payments on a residential investment property can be used to offset tax owed on income from other sources.
The policy is notable for the fact that, until now, Labour has said it would not make changes to the tax system ahead of a comprehensive review of the tax system if it forms a government later this year, having gone to the last two elections promising an electorally unpopular capital gains tax on investment properties, which was judged to have scared off many potential Labour supporters.
Describing negative gearing as a "speculator's loophole", Little told the Labour congress that "losses on rental properties will be ring-fenced meaning they will no longer be able to be used to reduce the tax that speculators owe on other income".
"This will create a level playing field for home buyers and help families get a fair shot at buying a place of their own.”
The loophole had led to around $150 million of tax being avoided annually, Little claimed, adding it had been "heavily used by foreign buyers and most of the gains go to the people on the highest incomes".
The policy would be phased in over five years, with Labour recycling the funds into funding insulation and heating to make homes warmer and healthier with grants of up to $2000 per home.
The new policy adds to Labour's existing policies to prevent foreign buyers of homes they don't intend to live in, taxing gains on the sale of houses sold within five years rather than the current two-year rule, and the KiwiBuild policy to build and onsell some 10,000 new, affordable homes a year over 10 years to help alleviate the chronic housing shortage, which is worst in Auckland. Labour is also sponsoring legislation that would require rented properties to meet basic warmth and dryness standards.