ANZ slams ring fencing proposal

Tuesday 24 July 2007

ANZ Bank economists have said they believe ring fencing property investment tax losses “lacks a sound economic rationale” in the bank’s latest Property Focus publication.

They believe such ancillary policy instruments “would deliver additional distortions”.

Moreover, they say ring-fencing losses arising from property investment looks “dubious…It would undermine the principal of tax neutrality, in that all investment is taxed equally”.

“Rents would likely increase sharply, placing more upward pressure on inflation. In any case, ring fencing of property losses would be too late for this current housing cycle.”

The ring fencing of losses, previously flagged by the Reserve Bank, and raised by the Minister of Finance at a Finance and Expenditure Committee meeting last month, has been touted as a solution to help stem rampant housing market growth and give the Reserve Bank more leeway to ease monetary policy.

Since 1991, investors have been able to offset losses related to property investment either through Loss Attributing Qualifying Companies (LAQCs) or against their personal income.

This year’s ANZ Property Investors Survey showed that LAQC’s are the most popular ownership structure for property investors, and that popularity is increasing, with 55% of investors holding their properties in an LAQC this year, compared to 48% in 2005.

Cullen noted last month that there has consequently been an “explosion” in both the size of the losses reported, and the number of property investors, since the change came into force.

The Reserve Bank noted in its submission into housing affordability that New Zealand tax policy appears to be more favourably disposed towards rental property than that in other countries.

But “there seem to be some genuine misunderstandings,” ANZ says in its bulletin.

“Housing receives no tax advantages relative to other investments (apart from a temporary cash flow benefit from being able to depreciate, which is subsequently recoverable). Investors can use LAQC structures to offset losses from other activities.”

There is no widespread tax rort going on, the bank says. “The massive growth in the number of housing investors Dr Cullen alluded to since 1990 (from 50,000 to 200,000) has been of the typical mum and dad type. The implication we take from this is that the sizable losses being claimed by Dr Cullen look to be inflated by a few. The correct mechanism to address this is likely to reside in enforcement.”

Commenting is closed

Property News

More needed to address supply issues

Budget 2016’s increased funding for housing development might offer some supply-side help - but it’s not enough, commentators are warning.

House Prices

Defying the winter chill

Records continue to fall as housing markets around the country defy the traditional winter chill, new Trade Me Property data illustrates.

Commercial

Optioning commercial alternatives

Booming commercial property sector could offer alternatives to investors worried about what lies ahead for the residential property market.

Mortgages

OCR hold right call – for now

Leaving the OCR on hold today was the right decision, but there will be further cuts down the track, economists say.

Site by PHP Developer