Greedy Labour Punishes Rental Home Owners

Tuesday 13 July 2004

Press Release: ACT New Zealand

By The Landlord

ACT New Zealand Deputy Leader and Housing Spokesman Dr Muriel Newman today accused Labour of this week continuing its attack on rental property owners with the release of proposals advocating a tougher depreciation regime for rental housing investors.

"These proposals - which could net Government an extra $30-$40 million a year in tax from rental property owners - will hit rental homeowners hard," Dr Newman said.

"This plan will limit tax deductions for depreciation on rental properties to a two percent straight-line regime. This means that, for example, a landlord who owns a $150,000 building will have their taxable income increased by around $15,000 over the first six years - forcing them to pay an extra $5,000-$6,000 in tax over that time, or $1,000 a year.

"Landlords seeking to recover increased tax cost from rents - about $20 a week - may be frustrated by excess supply of rental accommodation in the market, and a related move will limit the extent to which landlords can separately depreciate component parts of a building. This will force landlords to use the standard two percent rate, resulting in increased tax bills. "Such a punitive tax regime is in serious danger of back-firing, perhaps even triggering a property price correction sooner rather than later - all at a time when the market is widely accepted as being overheated, and interest rates are on the increase.

"Rental yields are already at historic lows of around five-six percent, and the tougher tax regime will reduce net after-tax yields even further. When viewed against the backdrop of rising interest rates, the tax changes will simply mean debt funding of rental property purchases at current prices is not economically viable.

"This comes on top of Labour's announcement that depreciation would be clawed back by IRD on rental properties transferred as part of a deceased person's estate. This could see forced sales as surviving relatives are hit with hefty tax bills. This has been labelled `death duties in drag' - and is symptomatic of a Government simply seeking to increase the size of its piggy-bank," Dr Newman said.

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