Commercial property investors will foot the bill of proposed land tax

Thursday 31 December 2009

Commercial property owners and investors will be left to “foot the bill” of a proposed land tax, according to the Property Council of New Zealand.

By Paul McBeth

Chief executive Connal Townsend said the Victoria University-led Tax Working Group's proposal to impose a tax on land and to remove depreciation rates on commercial property will have a significantly adverse effect on property owners and investors by imposing costs and limiting future investment.

"It will be harder to attract long-term tenants and the number of run down commercial properties will rise, resulting in more unattractive, unwanted buildings," he said in a statement.

A land tax was earmarked as a likely winner over a proposed capital gains tax as the working group investigates ways to broaden the country's tax base. The group has no government mandate, but is collaborating with officials from The Treasury and Inland Revenue Department.

In a document released in October, the group found the $200 billion rental property market not only pays no tax when it could be contributing between $500 million and $900 million a year to the government coffers, but is actually receiving refunds.

The New Zealand Property Investors' Federation favours a capital gains tax, with President Martin Evans saying it would at least give investors time to prepare for it. Evans is scathing of a proposal to ring-fence property for taxation purposes which would tax each property as its own entity.

Townsend said a land tax was "completely inefficient" as it would merely pass the additional costs on to tenants, and would also discourage investment in "green buildings."

"All of the positive work that has been done in New Zealand in terms of green building would be undone," he said.

Comments from our readers

On 28 September 2010 at 11:35 am Doug said:
Commercial Tenants would be wise to lobby this issue as it is them that would likely bare the brunt of any increase in Lanldords overheads by way of increased operating cost/outgoings charges or at the very least an ultimate increase in rents to generate the same rate of return on the Landlords higher costs. I would think that if forced into a choice between Capital Gains or a Land Tax, Tenants should lobby for the Capital Gains option as it will be much more difficult for Landlords to pass this cost on to the Tenant, vs. a Land Tax that would most certainly appear on the next Outgoings invoice to the Tenant. Once again, Landlords and Tenants on the opposite side of the issue.
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