Tax man takes a hard look at landlords

In an issues paper released yesterday, officials say the present regime for residential rental properties, which allows an annual deduction of 4 per cent of a building's diminishing value over 50 years, may be too quick for rental properties.

They propose replacing it with straight-line depreciation of 2 per cent a year (which would be equivalent to about 3 per cent a year on a diminishing value basis).

But Auckland Property Investors Association president Andrew King said that would just make rental properties more expensive. "It will be passed through to rents," he said.

A key concern for the Government is the extent to which the tax treatment of rental properties is being used to shelter other income.

Even though the number of people declaring rental income increased by 95,000, or 150 per cent, between 1991 and 2002, the net taxable income from landlords fell from $200 million in 1991 to $137 million in 2002, and an estimated $190 million last year.

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