Appeal for IRD campaign on property taxation

Calls for tax provisions aimed at property investors, such as a capital gains tax, have been coming thick and fast from sources as varied as the Reserve Bank, the Green Party and Gareth Morgan.

And the general public seems to be supportive of such suggestions.

NZ Property Investors Federation executive officer Andrew King said there is a widely held belief that investment property has some form of tax advantage and is not taxed.

“This misapprehension is not helped by certain commentators continually repeating that property has a tax advantage without actually stating what it is.”

However, this belief is completely wrong, he said.

“The fact is that if anyone buys a property in New Zealand with the intention of selling it for a profit, then any profit they make is taxed.

“Likewise, if someone owns a property which they are getting rental income from, that income is taxed just like any other business or investment is.”

Lack of awareness of this fact leads to incorrect perceptions about property investors.

It also means some people put themselves at severe financial risk by trading property unaware that they owe tax on the profit.

For this reason, the NZPIF is advocating for the IRD to run an educational campaign on property taxation.

King said a campaign could be funded with some of the resources Finance Minister Bill English recently suggested were coming the IRD’s way to better enforce existing property taxation.

“If the IRD is getting extra funds from government to crack down on property speculators/traders who are evading tax, they have an obligation to use some of that money to educate on what the tax law really is.”

For example, New Zealanders need to know that big property traders/speculators do have to pay tax – and that there is a difference between them and the average investor.

But King said that, most importantly, if people continue to believe that property is not taxed, some will trade in property believing they don't owe tax thus putting themselves at serious risk with the IRD.

“While commentators are providing misleading information to the general public, it is unfair to prosecute people who unwittingly don't comply with the tax rules.”