Opinion

COMMENT: Loss ring-fencing ups war on renters & owners

New rules around the ring-fencing of rental property losses came into force late in June and Stop the War on Tenancies spokesman Mike Butler believes they’ll have a negative impact on the rental market...

Wednesday, July 10th 2019

Mike Butler

The largely unreported end of the ability of rental property owners to claim losses against other income shows that the Government is unaware of the scale of the problem it is creating with accommodation.

The Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Bill quietly became law while we were distracted with a Cabinet reshuffle that demoted Housing Minister Phil Twyford.

Under the vague subheading: “Allocation of deductions for excess residential land expenditure”, the omnibus tax Act:

(a) limits a person’s deductions for expenditure incurred in relation to residential land to income derived from the land;

(b) suspends deductions for the excess expenditure for the income year in which the expenditure is incurred;

(c) provides that the excess amounts are carried forward to later income years in which the person derives residential income; and

(d) releases the excess amounts on fully taxed disposals of land.

Inland Revenue has said in various statements that 116,000 owners declared an average loss of $7138 ($137 a week) on earnings in the 2016/17 tax year.

That brings an average tax benefit of $2000 a year to each, creating a total cost of $232 million to them.

The Minister responsible for this, Revenue Minister Stuart Nash, is probably unaware that losses accrue at the first stages of a property investing career.

But as debt is reduced and income increases, investors become taxpayers, with some paying tens of thousands of dollars in tax each year.

Rental property owners who are losing money now face a choice - raise the rent to cover the loss, absorb the loss to apply it in the future to any profit, or sell.

With rents at historic highs it is unlikely owners could add an average extra $137 every week to rents.

This means that owners must choose between hanging on or selling and, for many, the short answer is to sell, with stand-alone dwellings going to first home buyers.

With loss-making owners selling and the prospect of an extended and more fraught period of trading at a loss creating a barrier to new investors, the Minister has just sped up the reduction of the supply of rental property.

As a result, rents will continue to rise and homelessness will increase.

The problem for everyone is that the Government is in denial that the policies it is enacting to solve a housing crisis are making the crisis exponentially worse.

A final note: Labour, New Zealand First, and the Green Party voted in favour on the third reading of the bill on June 20, while National and Jamie Lee Ross voted against it. Hansard has no record of a vote by the ACT Party.

*Mike Butler has owned and managed rental properties for 27 years and currently has 60 tenants in 12 buildings. He is the spokesperson for Stop the War on Tenancies, a group dedicated to highlighting evidence that successive governments have ignored while creating rental property policy.

Read more:

New investors & speculators likely to suffer under new rules 

Ring-fencing Bill hits Parliament 

COMMENT: Ring-fencing impact likely to be limited 

Comments

On Saturday, August 31st 2019 11:52 pm Simont23 said:

simont23. I am in the process of setting up an office admin company which will incur fees exactly equal to all my property expenses from my property investment company. These fees will result in a loss for my office admin, set off against my other taxable income. Result; legal and commonsense happiness.

Heartland Bank - Online 1.85
The Co-operative Bank - First Home Special 2.09
SBS Bank Special 2.19
TSB Special 2.25
The Co-operative Bank - Owner Occ 2.25
Kainga Ora - First Home Buyer Special 2.25
ICBC 2.25
AIA 2.25
Westpac Special 2.25
HSBC Special 2.25
ANZ Special 2.25
ICBC 2.35
HSBC Premier 2.35
Heartland Bank - Online 2.35
TSB Special 2.49
SBS Bank Special 2.49
Kiwibank Special 2.55
BNZ - Classic 2.55
The Co-operative Bank - Owner Occ 2.59
AIA 2.59
Westpac Special 2.59
ASB Bank 2.59
HSBC Premier 2.89
China Construction Bank Special 2.99
ICBC 2.99
SBS Bank Special 3.19
Kainga Ora 3.37
The Co-operative Bank - Owner Occ 3.39
TSB Special 3.39
AIA 3.39
Kiwibank Special 3.39
BNZ - Classic 3.39
ASB Bank 3.39
Heartland Bank - Online 1.95
Resimac 3.39
Kiwibank - Offset 3.40
Kiwibank Special 3.40
Kiwibank 3.40
Bluestone 3.49
Select Home Loans 3.49
ICBC 3.69
The Co-operative Bank - Standard 4.40
The Co-operative Bank - Owner Occ 4.40
Kainga Ora 4.43

More Stories

Concerns about new tax ‘dismissed out of hand’

Friday, May 14th 2021

Concerns about new tax ‘dismissed out of hand’

The Property Investors Federation’s pleas for the Government to stop plans removing investors’ ability to claim mortgage interest payments as a tax deduction or modify how the policy is introduced have fallen on deaf ears.

House prices haven’t dropped yet – new records set

Thursday, May 13th 2021

House prices haven’t dropped yet – new records set

Records for house prices have been set yet again despite the lowest number of houses available for sale during an April month since records began.

Methamphetamine use doesn’t mean eviction

Wednesday, May 12th 2021

Methamphetamine use doesn’t mean eviction

A landlord who wanted to evict a tenant because of possible methamphetamine use by two flatmates has been slapped down by the Tenancy Tribunal.

New homes under threat from overstretched construction sector

Wednesday, May 12th 2021

New homes under threat from overstretched construction sector

While the unemployment rate has fallen to 4.7% it could have an outsized risk for new home building.