Housing Announcement and Reforms 23/03/2021

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#2684245 30-Mar-2021 18:42

sir1963:

The limit them to 60% of the valuation from 3 years ago. But don't lie.

We DO have capital gains now via the bright line test. Now we have it, watch it spread.

Tax deductibility was NEVER a "tax loop hole", if it was they would apply it to every business.

A very fair comment. What do you suggest when investors claim everything, yet don't comply with a capital gain as they bypassed Brightline? Lets be fair, property investment is not about cashflow (rents less interest, insurance and R+M) its about capital gain. I bought a rental investment at age 19 with a mate. Its not about yield.

If its a business, then yes I agree, claim all business expenses, but also be taxed on the profit, which as we both know is the tax free capital gain

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#2684251 30-Mar-2021 18:46

sir1963:

The purposes was to stop property developers from renovating a property, rent it out for a few months, claim they were landlords and avoid the tax they should have paid.

It was a line in the sand that IRD, developers and accountants were all aware of.

Landlords were not there to buy and sell, they were long term investors so the 2 year line was hardly an issue.

10 years now is not a line in the same, it is a conversion for one class of asset to be taxed on capital gains. Its purpose is very different.

But I also never vote for Key, perhaps I should have.

When property investors buy and sell for the obvious purpose of a capital gain (or the legitimate purpose of buy, reno, then sell) its taxed. If you want to hide behind Brightline, well.....

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#2684252 30-Mar-2021 18:49

Handle9:

I’m quite serious. It’s incredibly easy to have a diversified portfolio. There are any number of ETFs that can be bought online cheaply and very easily.

Agree, ETF's, small commercial property, larger commercial property, positive and growing companies on the sharemarket, a business venture as an active or silent partner. Or flag all that and just outbid a FHB, and wait

sir1963

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#2684255 30-Mar-2021 18:54

tdgeek:

sir1963:

The limit them to 60% of the valuation from 3 years ago. But don't lie.

We DO have capital gains now via the bright line test. Now we have it, watch it spread.

Tax deductibility was NEVER a "tax loop hole", if it was they would apply it to every business.

A very fair comment. What do you suggest when investors claim everything, yet don't comply with a capital gain as they bypassed Brightline? Lets be fair, property investment is not about cashflow (rents less interest, insurance and R+M) its about capital gain. I bought a rental investment at age 19 with a mate. Its not about yield.

If its a business, then yes I agree, claim all business expenses, but also be taxed on the profit, which as we both know is the tax free capital gain

NO business pays capital gain....well landlords will end up paying it.

Every time people feel aggrieved it will be used as a tool by whom ever in government as a pacifier.

Developers rely on cash turn over for the next project, they are no interested in their capital being locked up long term.

And that same "profit" is made by the 60+% who are home owners.

sir1963

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#2684256 30-Mar-2021 18:56

tdgeek:

sir1963:

The purposes was to stop property developers from renovating a property, rent it out for a few months, claim they were landlords and avoid the tax they should have paid.

It was a line in the sand that IRD, developers and accountants were all aware of.

Landlords were not there to buy and sell, they were long term investors so the 2 year line was hardly an issue.

10 years now is not a line in the same, it is a conversion for one class of asset to be taxed on capital gains. Its purpose is very different.

But I also never vote for Key, perhaps I should have.

When property investors buy and sell for the obvious purpose of a capital gain (or the legitimate purpose of buy, reno, then sell) its taxed. If you want to hide behind Brightline, well.....

Correct, and it should be, but buy renovate sell relies on quick turnover to keep the cash flowing.

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#2684263 30-Mar-2021 19:07

sir1963:

NO business pays capital gain....well landlords will end up paying it.

Every time people feel aggrieved it will be used as a tool by whom ever in government as a pacifier.

Developers rely on cash turn over for the next project, they are no interested in their capital being locked up long term.

And that same "profit" is made by the 60+% who are home owners.

Well, what business relies on capital gain? A sharemarket investment company. A property investor also. Well almost, but better with the new rules.

Any business. Say I have a business selling weeds. My company car cost 50k. It depreciates to 10k. We sell it for 15k, I pay tax on the profit on sale of a fixed asset. Is that a capital gain? technically no as I bought it for 50k and sold it for 15k. But I claimed the asset cost, 40k of it that reduced my profit and also my tax. I now pay tax on the NET capital gain

So if you wish to claim deductibility on interest you need to pay tax on the profit. Which is CGT. CGT's issues is fairness. In my example its fair, but CGT relies on factoring in inflation. A 400k capita gain profit over 10 years is not the same if inflation is 8% p.a.. BUT, you put down 10% deposit, so 90% of your gross capital gain is an infinite yield. You got 90% capital gain for zero investment.

Thats a good deal.

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#2684267 30-Mar-2021 19:14

sir1963:

Correct, and it should be, but buy renovate sell relies on quick turnover to keep the cash flowing.

I agree. Its a business. Buy at 350k. Add 100k, sell at 450k, I pay tax on the profit.

I could also buy at 350k add 6k, get cashflow from rents, tax deduct interest, Ins, rates, R+M, sell for 450k. But if I sell at 5 years and 1 day, tax free. So I wont be tagged by the IRD as a player, I'll just buy a 2 million property instead of 5 smaller ones. Or I'll buy a swag of regular properties, and hold for the tax free gain and claim retirement. Or, I will accept that I am a property investor/employee/cleaner/CEO and pay tax

A residential CGT is a good idea. As long as it factors in inflation so it becomes a net CGT

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#2684280 30-Mar-2021 19:40

tdgeek:
Well, what business relies on capital gain?

Many small business people rely on capital gain to make their business worthwhile. They will pay themselves a wage while reinvesting the profit to grow the business. They take that profit as goodwill when they sell out.

There is nothing wrong with a business model relying on capital gains unless there are other adverse social effects.

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#2684293 30-Mar-2021 20:09

Handle9:
tdgeek:
Well, what business relies on capital gain?

Many small business people rely on capital gain to make their business worthwhile. They will pay themselves a wage while reinvesting the profit to grow the business. They take that profit as goodwill when they sell out.

There is nothing wrong with a business model relying on capital gains unless there are other adverse social effects.

Yes, thats a good point. If I ran a small business and grew it, adding to the economy, adding employment, adding to the IRD receipts, you could argue thats a good deal for all concerned. While I might pay myself from drawings or a wage, its plausible that my unpaid effort to grow the business was possibly in excess of an hourly rate for what I physically did as a business owner. Plus those in a real business, are taking a real risk. I see that as part of the economy.

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#2684294 30-Mar-2021 20:10

Handle9:

There is nothing wrong with a business model relying on capital gains unless there are other adverse social effects.

As a late point, relying on capital gains or earning capital gain for the effort injected.

sir1963

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#2684316 30-Mar-2021 20:47

Well here is Labours take on Rent increases

https://www.newshub.co.nz/home/politics/2021/03/have-rents-tended-to-mirror-wage-growth-as-prime-minister-jacinda-ardern-claims.html

And here is a prediction of a lot of people loosing there homes

https://www.newshub.co.nz/home/money/2021/03/mortgage-borrowers-warned-interest-rate-hikes-likely-in-next-couple-of-years.html

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#2684324 30-Mar-2021 20:59

sir1963:

Well here is Labours take on Rent increases

https://www.newshub.co.nz/home/politics/2021/03/have-rents-tended-to-mirror-wage-growth-as-prime-minister-jacinda-ardern-claims.html

And here is a prediction of a lot of people loosing there homes

https://www.newshub.co.nz/home/money/2021/03/mortgage-borrowers-warned-interest-rate-hikes-likely-in-next-couple-of-years.html

I dont follow that, what is your point? To date rents have mirrored wages. Over 14 years. And with interest rates at covid/QE levels, of course they will increase when the global economy stabilises. Why also does the link say hikes, and also says slightly higher? "over the next couple of years, Tennent-Brown says it's realistic for mortgage rates to rise a quarter-of-a-percent to half-a-percent. " Clickbait anyone?

And I can't find the bit about losing their homes.

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#2684451 31-Mar-2021 07:38

tdgeek:

sir1963:

Well here is Labours take on Rent increases

https://www.newshub.co.nz/home/politics/2021/03/have-rents-tended-to-mirror-wage-growth-as-prime-minister-jacinda-ardern-claims.html

And here is a prediction of a lot of people loosing there homes

https://www.newshub.co.nz/home/money/2021/03/mortgage-borrowers-warned-interest-rate-hikes-likely-in-next-couple-of-years.html

I dont follow that, what is your point? To date rents have mirrored wages. Over 14 years. And with interest rates at covid/QE levels, of course they will increase when the global economy stabilises. Why also does the link say hikes, and also says slightly higher? "over the next couple of years, Tennent-Brown says it's realistic for mortgage rates to rise a quarter-of-a-percent to half-a-percent. " Clickbait anyone?

And I can't find the bit about losing their homes.

People on the edge will find the rent increase problematic. And the interest could rise higher.

It was not that long ago we were paying 6%, how many home owners would be able to fine another $24,000 (additional 3% on an $800,000 mortgage), even 1% is 8K, or over $150 a week.

tdgeek

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#2684454 31-Mar-2021 07:52

sir1963:

People on the edge will find the rent increase problematic. And the interest could rise higher.

It was not that long ago we were paying 6%, how many home owners would be able to fine another $24,000 (additional 3% on an $800,000 mortgage), even 1% is 8K, or over $150 a week.

I agree but you said it was predicted by the article in your link

As for those people, that's too bad, they knew the risk. Of all the homeowners in NZ a very small number are recent purchasers, and not all of them would be forced to sell. Plus this risk is inherent no matter what a Govt did or didnt do, its been there for a good while now

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#2684468 31-Mar-2021 08:34

tdgeek:

I agree but you said it was predicted by the article in your link

As for those people, that's too bad, they knew the risk. Of all the homeowners in NZ a very small number are recent purchasers, and not all of them would be forced to sell. Plus this risk is inherent no matter what a Govt did or didnt do, its been there for a good while now

I'm against the idea of owner-occupiers facing financial ruin on properties they bought to live in because investors spiked prices to insane, unsustainable levels.

We could target assistance to home owners facing negative equity if we want to, but I think it comes with a moral obligation to fully unwind house prices back to affordable levels by global standards.

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