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.”
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