Property investors uneasy with tax changes

Paddon says the proposals in the paper, if adopted, will have a wide-ranging impact on the property investment market in New Zealand.

"The proposals will create disincentives to invest in property, especially for small-time Mum and Dad investors," he said.

The issues paper says the present depreciation regime on rental housing properties, that currently allows an annual deduction of 4% of a building's diminishing value over 50 years, may be "too generous".

Accordingly the issues paper advocates replacing it with a limited straight-line depreciation of 2% a year (which would be equivalent to about 3% a year on a diminishing value basis).

"This means that, for example, a landlord who owns a $150,000 building will have their taxable income increased by around $7,500 over the first six years - forcing them to pay an extra $2,500-$3,000 in tax over that time," Paddon says.

Paddon says under the proposals tenants are the ones who will suffer as landlords will need to increase rents to recover any cashflow losses and to maintain yields.

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