Leverage, not tax, advantage: APIA

Monday 27 May 2013

It is banks’ perceptions of the stability of the New Zealand housing market that advantages residential property investors, not any preferential tax treatment, the Auckland Property Investors Association says.

By Susan Edmunds

BNZ chief executive Andrew Thorburn stoked the debate on the tax treatment of rental housing investment when he said the tax system needed to change so that it equalised the options for savings and investing.

"At the moment, if you are a residential housing investor, your effective tax rate is a lot lower than if you have money in the bank or you get dividends from a company. So it's just people are doing what's rationally correct," he said.

But APIA president David Whitburn said Thorburn was just the latest in a long line of people who mistakenly claimed the system gave property investors a tax edge. He said there had been a lot of misinformation and property investor bashing recently.

Whitburn said Inland Revenue itself had said the idea that landlords received special tax treatment was a myth.

Rules about deducting costs such as interest, upkeep and maintenance, and paying tax on income were the same for any other investment.

Whitburn said it was just because banks were willing to lend large amounts on rental investments that investors had large interest costs to claim, and so could receive tax deductions.

“The truth that must be understood is that property investment is leverage advantaged.  There is a crucial difference."

It is much less common to borrow large amounts to invest in shares.

“The property market is generally perceived by banks as being far less volatile than other markets where you can get leverage for your investments, so higher levels of leverage are offered than for equities (and leverage is rare or impractical for cash and fixed interest investments).”

He said he expected a Labour/Greens government to ring-fence tax losses, so investors with negatively-geared portfolios could not offset them against their income. “This will put a focus on having positive-cashflow portfolios.”

Comments from our readers

On 28 May 2013 at 12:10 pm Babu said:
Just rewind 2 years ago, when the Government, introduced "no claims on depreciation" on properties. This resulted increase in rent. Labour/Greens government if elected, will introduce policy of ring-fence tax losses, gives even more rewards for landlords to increase rent in order to get positive-cashflow. I invest in shares as well as rental properties. I do have margin lending account, and I claim interest paid on margin lending against my shares purchase. I do not see anything difference between share investment and rental property investment, in terms of deductions. However, the banks do not take dividends as my income because the banks feel that businesses may not make profit to declare dividends every year. Can someone tell me why bank is treating dividend income in this way? In a nutshell,even if assuming that landlords are reducing their income tax because of loss claims due to rental properties,just a small reminder that the landlords will only get one third of losses through the tax system assuming that the landlords are earning an income over $70k per annum. Still landlords are burdened with two third of overall loss. Is it fair to condemn the landlords in this way?
On 28 May 2013 at 3:51 pm Barry said:
Shows you how dumb bankers are - I deduct for tax interest from borrowing to buy shares and for rental houses . I pay tax on net rental income i.e. rents received less valid costs for rates insurance etc - where is the tax advantage. I pay minimal tax on share dividends as there are imputation credits attached. Are shares advantaged?

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