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Tax change bad news for tenants

Tax change bad news for tenants - a media release from the NZ Property Investors' Federation

The IRD states that in NZ, tax is applied to a person's net income and there are no restrictions on loss making from any source. However the Government is introducing a Bill to just ring-fence rental property tax losses.

“When you examine the statements made by Labour, we believe these are misguided” said Andrew King, Executive Officer of NZ Property Investors’ Federation (NZPIF).

For example, Labour says they want to "create a level playing field for families to buy their first home by removing a tax loophole that speculators use to avoid paying tax". They claim this is for fairness saying “investors with loss-making rental properties can subsidise part of the cost of their mortgages through reduced tax on other income, helping them to outbid owner-occupiers for properties". They claim that this is a loophole and unfair, but that is misguided.

When buying a property, home owners get the benefit of accommodation for which there is no income or taxation. Rental property providers get the benefit of rental income and pay tax on this rent less expenses. These are completely different situations and it is wrong to suggest that a rental property buyer has an advantage over a home buyer.

During the election, Labour said "for a smooth transition, this change will be phased in over five years, with loss deductibility reducing by 20 per cent a year". It is disappointing that this is no longer the case and the law will apply completely from this April.

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The new law explicitly encourages rental property owners to increase their rental prices. Without this occurring, rental property owners will find it harder to provide rental properties and the current shortage of these will only get worse.

A NZ Property Investors' Federation (NZPIF) study in September showed that even with a 10% cash deposit and an interest only loan, it cost $6,500 in the first year to provide the average NZ home as a rental for a tenant. From April when this new law comes into play, this will increase to $10,900, an increase of $4,400 or $84 per week.

In a submission on ring-fencing, the NZPIF said that ring-fencing losses would provide a barrier to people being able to provide much needed new rental properties. While not supporting ring-fencing, our proposal was to cap the amount of loss able to be claimed rather than removing the rule altogether. This would have reduced the impact of the new tax, reducing the need for further rental price increases and reduced supply of rental properties.

“We are disappointed that this suggestion has been ignored”, said King.

ENDS

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