Property

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.

Friday, May 14th 2021

Andrew King

Federation president Andrew King says its concerns over the Government’s new tax policies, which also include extending the bright-line property rule to 10 years, were “dismissed out of hand”.

This in spite of backing from The First Home Buyers Club, Tenants Protection Association (Christchurch) and Renters United in Wellington.

While kicking the federation’s concerns into touch, the Government has asked officials for advice on rent controls, indicating it realises rental increases are highly likely to stem from the new tax law, says King.

If rent controls are introduced, the federation believes it will only confirm removing mortgage interest as a tax deduction is a poor Government decision.

Ministers’ meeting

King and federation executive officer Sharon Cullwick went to a meeting with Government ministers on Monday armed with research on how landlords will be affected and what the likely effect will be because there has been an absence of any Government information.

They met with Finance Minister Grant Robertson, Housing Minister Megan Woods, Revenue Minister David Parker, Associate Housing Minister Poto Williams, Revenue Under-Secretary Dr Deborah Russell and 12 policy advisers to discuss the research which shows 69% of investors will not be affected by the bright-line change.

However, removing the ability to claim mortgage interest payments as a legitimate tax deduction will affect 90% of landlords by an average cost of $4,542 per rental property.

More than 70% of landlords want to increase rents by a median of $21-$30 a week to keep their rentals.

King says The First Home Buyers Club, Tenants Protection Association (Christchurch) and Renters United in Wellington backed up the federation’s belief that removing mortgage interest tax deductibility was not in the best interest of their members.

“We asked them to support us in requesting the Government reconsider this policy, which they did.”

A letter was sent to Government ministers outlining the federation understood the Government’s desire to help first home buyers.

The letter pointed out concerns about removing tax deductibility and asked them to reconsider the policy. 

“It was a powerful letter because it included the perspective of tenants, who will be collateral damage in the change.

“The First Home Buyers Club doesn’t believe it will help their members, but it will, in fact, make it harder for them to save deposits required to purchase their first homes,” says King.

Dismissal

He says the Government’s dismissal of the letter and request the tax policy be dropped was not unexpected.

The federation has prepared a plan B proposing modification of how the removal of interest deductions will be introduced.

King says while the IRD is going to undertake public consultation on the new tax change, it will be limited to specific details and not the main structure of the change.

The plan was based on the British Government’s less severe introduction of a similar policy, which King says didn’t have as much impact on investors.

UK mortgage interest claims are limited to a base tax rate of 20%, rather than higher tax rates as proposed in the New Zealand policy.

The UK also allowed rental property held in companies to deduct mortgage interest as before.

“The more measured reduction in claiming mortgage interest as a tax deduction meant only an estimated 18% of rental property owners with debt were affected and rental prices have not been affected to a large degree,” says King.

“In New Zealand 100% of property investors will be affected and we are disappointed to find the UK policy has been considered but Robertson says it is unlikely the Government will look at changing the New Zealand policy’s structure. 

“It appears no consideration is being given to advice from tenants, first home buyers and officials from the IRD, Treasury, the Housing and Urban Development Ministry, economists and tax experts who do not agree with this tax change.”

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