Housing Announcement and Reforms 23/03/2021

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#2681057 26-Mar-2021 13:37

SaltyNZ:

Paul1977:

I'm not an investor, a renter, or a FHB. I'm just like a lot of people out there, own a home to live in and have a mortgage. So I'd like to think my opinion is somewhat objective at this point.

You don't have to be one of those classes to have been affected. Out of control rising house prices hurt everyone except the investor by taking money out of the useful economy and putting it into investors pockets to die.

I've been a landlord in the past myself and I am still finding it very hard to get all broken up over the fact that some of these investors are seeing the first hurt on their investment, ever, and demanding someone make it all better for them as OMG their human rights are being bludgeoned.

The thing about safe investments is that they are also supposed to be low return. You're not supposed to get it both ways. Adding in some risk to match the astronomical returns is only a step in the right direction to balance things out.

Lots of people had their investments tanked during other financial crises. Property investors aren't special; why should they expect to be immune?

Problem is, those issues are a direct result of successive government not doing anything, in fact they have actively made things worse.

If you want to do a CGT, then do it, but do it on ALL homes.

And when you were a landlord, did you pay tax on the gross income received, or on the gross profit, ie when all expenses including interest were deducted ?

For the majority of the last 100+ years, the sharemarket has out performed the rental market.

What has happen is that with record low interest rates, people who had money in the bank are now earning basically nothing , so they took out that money and put it into property.

When interest rates rise again, money will flow out of housing and into the banks again.

Let me know which South Canterbury Finance investor lost their money, they didn't, the government bailed them all out.

sen8or

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#2681062 26-Mar-2021 13:41

No business pays tax on "capital gains", any claim to the contrary is factually wrong. The difference can be related to the intent / purpose of the asset.

Shares bought and sold for profit - taxable - Shares bought for investment purposes and later sold for profit - not taxable (intent and/or trading history would be relevant here).

Property (residential or other) bought and sold for profit - taxable - Property bought for investment purposes and sold later for profit (in brightline - taxable, out of brightline - not taxable) - intent sort of matters here, but brightline test has eliminated the onus of the IRD to prove intent, intent is inferred if sold within brightline.

There are even provisions within the income tax act for people associated with property traders / investors / developers to be caught by the same rules that apply to the person themselves (to stop the old "its not my house, its my 2 year old sons defence).

sir1963

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#2681063 26-Mar-2021 13:43

SaltyNZ:

sir1963:

Other more successful economies than NZ (eg Germany, Switzerland) also have LOWER rates of ownership.

With rules tilted so far in favour of tenants that Kiwi landlords would be having a stroke. So, if you're suggesting we go that way...?

You mean how its more like a lease ?

Can I check your renters insurance ?, got none...sorry, go away.

You want a kitchen ? Go ahead and buy one and fit it at your expense, just remember to remove it when you go.

Paint, Wall paper, go for it, just remember at the end it is up to you to restore the property back to how it was.

And that will be 3 months bond please.

And and minor maintenance is also your problem and the police actually prosecute people who damage a house.

SaltyNZ

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#2681064 26-Mar-2021 13:44

sir1963:

And when you were a landlord, did you pay tax on the gross income received, or on the gross profit, ie when all expenses including interest were deducted ?

I honestly don't remember - I'm an engineer, not an accountant - but it was only ever a few thousand dollars back in tax. Certainly was never going to be enough to leverage into another thirty properties. And I think the only time we ever put the rent up was in between tenants.

Let me know which South Canterbury Finance investor lost their money, they didn't, the government bailed them all out.

On the flip side, I lost a ton of money in investments from around the early-2000s. No government bailouts when Great Southern plantations went titsup, for example. But I don't complain - risk is part of the game.

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Fred99

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#2681066 26-Mar-2021 13:52

sir1963:

My plumber works from home, he claims interest, rates, insurance, maintenance. Claimed his double glazing as well, and NO CGT on it all. Even better he gets to buy for his personal use at wholesale prices which none of us get.

Well he won't be able to claim the interest on the % he claims is business use of the residential property in future and anyway CGT liability should have been included in the brightline test.

But here is another couple of theoretical for you.
If we doubled the value of everything you own, along with everyone else, how much extra money do you have to spend at the supermarket, the answer starts with $0. So the capital gains we of zero use.

Okay, so using that logic, if you halved the value of everything you own, you'll spend just as much on consumables as you did before? I do not think so - "perceived wealth" absolutely and definitely affects consumer spending patterns.

next
House A and house B are identical , and the owner of house A is mortgage free. Over the years both houses have had a $200,000 capital gain. So still 100% equal.
Owner of house A has to shift towns for his job He has to sell house A, that was mortgage free, and with a CGT (bright line test) and now has to pay $60,000 in tax , how much better off has capital gains made him ?

Well he doesn't have to pay the $60,000 in capital gains tax as it isn't going to apply to him, so anyway if he's shifting house to another of similar value the "loss" to him is zero, apart from the hefty commission the RE agency makes, plus legal costs plus fees, plus shifting costs etc. But this has got nothing to do with the topic.

> Bottom line is that Landlords are a business, just like any other and should be treated the same.

So you're agreeing that capital gain should be treated as profit, and thus taxed as such, as applies to businesses, so that they're treated the same.

sir1963

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#2681067 26-Mar-2021 13:52

Batman

Hang on...

So in contrary if you buy a house and don't rent it out, can you avoid the tax?

Which is exactly what every school leaver will now do.

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#2681068 26-Mar-2021 13:53

sir1963:

Problem is, those issues are a direct result of successive government not doing anything, in fact they have actively made things worse.

The problem is investors making up a huge portion of the total market. 30% of sales. 30%! And 40% of mortgages held by investors are interest-only.

You can insist it's 'The Government's fault!' all you want, but the reality is that investors piling in for tax-free capital gains underwritten by the taxpayer are a huge part of why we're in the mess we're in.

Fred99

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#2681070 26-Mar-2021 13:56

sir1963:

Batman

Hang on...

So in contrary if you buy a house and don't rent it out, can you avoid the tax?

Which is exactly what every school leaver will now do.

Oh please!!! Most of us posting here with differing opinions and not agreeing - at least we try to make it appear as if we're living on planet Earth.

sir1963

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#2681071 26-Mar-2021 13:59

Fred99:

sir1963:

My plumber works from home, he claims interest, rates, insurance, maintenance. Claimed his double glazing as well, and NO CGT on it all. Even better he gets to buy for his personal use at wholesale prices which none of us get.
Well he won't be able to claim the interest on the % he claims is business use of the residential property in future and anyway CGT liability should have been included in the brightline test.

But here is another couple of theoretical for you.
If we doubled the value of everything you own, along with everyone else, how much extra money do you have to spend at the supermarket, the answer starts with $0. So the capital gains we of zero use.
Okay, so using that logic, if you halved the value of everything you own, you'll spend just as much on consumables as you did before? I do not think so - "perceived wealth" absolutely and definitely affects consumer spending patterns.

next
House A and house B are identical , and the owner of house A is mortgage free. Over the years both houses have had a $200,000 capital gain. So still 100% equal.
Owner of house A has to shift towns for his job He has to sell house A, that was mortgage free, and with a CGT (bright line test) and now has to pay $60,000 in tax , how much better off has capital gains made him ?
Well he doesn't have to pay the $60,000 in capital gains tax as it isn't going to apply to him, so anyway if he's shifting house to another of similar value the "loss" to him is zero, apart from the hefty commission the RE agency makes, plus legal costs plus fees, plus shifting costs etc. But this has got nothing to do with the topic.

> Bottom line is that Landlords are a business, just like any other and should be treated the same.

So you're agreeing that capital gain should be treated as profit, and thus taxed as such, as applies to businesses, so that they're treated the same.

So yes, but let me know which businesses pay capital gains .

https://www.business.govt.nz/how-to-grow/planning-to-exit/selling-your-business/

"New Zealand has no capital gains tax, so you won’t be taxed on profits you make selling a business"

sir1963

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#2681076 26-Mar-2021 14:07

SaltyNZ:

On the flip side, I lost a ton of money in investments from around the early-2000s. No government bailouts when Great Southern plantations went titsup, for example. But I don't complain - risk is part of the game.

My mum lost a lot on Goldcorp and Brierlys.

Fred99

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#2681101 26-Mar-2021 14:31

sen8or:

No business pays tax on "capital gains", any claim to the contrary is factually wrong. The difference can be related to the intent / purpose of the asset.

You think so really?

So, if your business bought a car that depreciates, and book value is written off to an annual % formula and claimed as a tax rebate over the time you own that car, and you then sell the car for more than book value, then your business does pay tax on the difference as that windfall is treated as income of the business. If you sell an asset owned by a business for a profit, that profit is taxable.

https://www.ird.govt.nz/income-tax/income-tax-for-businesses-and-organisations/types-of-business-expenses/depreciation/managing-depreciation

If you're owning a rental property and selling that property for a profit, then that property isn't "the business" - it's an asset held by the business.

Where you're confused is that businesses do not *generally pay tax on capital gains made when the business is sold. That's perfectly reasonable in most cases as it would be counter-productive to the whole idea that you should be continually improving your business by hard work and slog and business smarts (ie not just by capital investment).

*If it was a "business" consisting of no trading activity except holding an appreciating asset, then the business sold with assets for a profit to take advantage of no CGT on sale of a business, I think that's "evasion" rather than "avoidance", and IRD would be all over you like flies on whatever. If I remember, I'll check with a tax lawyer I know who works for IRD next time I catch up.

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sir1963

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#2681104 26-Mar-2021 14:36

GV27:

sir1963:

Problem is, those issues are a direct result of successive government not doing anything, in fact they have actively made things worse.

The problem is investors making up a huge portion of the total market. 30% of sales. 30%! And 40% of mortgages held by investors are interest-only.

You can insist it's 'The Government's fault!' all you want, but the reality is that investors piling in for tax-free capital gains underwritten by the taxpayer are a huge part of why we're in the mess we're in.

So you are saying 70% is NOT to investors. Actually that lines up pretty much the same with ownership vs rentals. If anything investors are under represented if 40% of houses are rentals.

But no surprise about investors anyway.

The low interest rates have driven people OUT of the banks and other cash investments, they really don't make any financial sense at the moment.

So the next investment average people can understand is property , it makes a better return than the bank offers, and unlike the last 100 or so years its even been out performing the sharemarket. Good financial management almost dictates investment in property.

The tax free capital gains has not a lot to do with it. No one sane is chasing tax losses. I will 100% of the time take 70% of the profits vs 100% of nothing (or worse).

Its just like the idiots who won't work overtime because they may have to pay more tax.

Fred99

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#2681105 26-Mar-2021 14:36

sir1963:

"New Zealand has no capital gains tax, so you won’t be taxed on profits you make selling a business"

Yes - but see above. When you're a landlord selling a house for a profit, you're selling an asset owned by the business - you're not selling the "business" per se.

tdgeek

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#2681106 26-Mar-2021 14:41

GV27:

sir1963:

Problem is, those issues are a direct result of successive government not doing anything, in fact they have actively made things worse.

The problem is investors making up a huge portion of the total market. 30% of sales. 30%! And 40% of mortgages held by investors are interest-only.

You can insist it's 'The Government's fault!' all you want, but the reality is that investors piling in for tax-free capital gains underwritten by the taxpayer are a huge part of why we're in the mess we're in.

Nov/Dec it was 2/3 of sales

sir1963

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#2681109 26-Mar-2021 14:53

Fred99:

sen8or:

No business pays tax on "capital gains", any claim to the contrary is factually wrong. The difference can be related to the intent / purpose of the asset.

You think so really?

So, if your business bought a car that depreciates, and book value is written off to an annual % formula and claimed as a tax rebate over the time you own that car, and you then sell the car for more than book value, then your business does pay tax on the difference as that windfall is treated as income of the business. If you sell an asset owned by a business for a profit, that profit is taxable.

https://www.ird.govt.nz/income-tax/income-tax-for-businesses-and-organisations/types-of-business-expenses/depreciation/managing-depreciation

If you're owning a rental property and selling that property for a profit, then that property isn't "the business" - it's an asset held by the business.

Where you're confused is that businesses do not *generally pay tax on capital gains made when the business is sold. That's perfectly reasonable in most cases as it would be counter-productive to the whole idea that you should be continually improving your business by hard work and slog and business smarts (ie not just by capital investment).

*If it was a "business" consisting of no trading activity except holding an appreciating asset, then the business sold with assets for a profit to take advantage of no CGT on sale of a business, I think that's "evasion" rather than "avoidance", and IRD would be all over you like flies on whatever. If I remember, I'll check with a tax lawyer I know who works for IRD next time I catch up.

THAT is depreciation, NOT capital gains.

If you claim depreciation and you sell it for more than the depreciated value then yes, you owe the tax man.

So, lets look at Kiwi Properties. They buy a Mall for 100 Million and in 5 years sell it for 200 million, do they pay capital gains. No, the intent of buying the mall was for the rental/trading income.

However if they claimed 20 Million in depreciation , then they would have to reimburse IRD the amount they received .

This is not evasion nor avoidance, it is the LAW.

And where IRD think someone has broken the tax law (ie the major banks a few years back) they will take those companies to court to enforce the tax law (which they won).

As for housing landlords, the brightline was there to make it simple and clear to Accountants, Investors and the IRD what property investment was Landlord activity and what was property development. Property developers have ALWAYS paid tax on the capital gain and they can STILL claim interest costs, the new tax law does not impact them.

Landlords and property developers are no more the same thing than cats and dogs are.

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