Property investors uneasy with tax changes

Friday 6th August 2004

New Zealand Property Investors Federation president Craig Paddon says it is no surprise that submissions are flooding in well-ahead of deadline on the government""'s property depreciation tax paper Repairs and Maintenance to the Tax Depreciation Rules.

Paddon says the proposals in the paper, if adopted, will have a wide-ranging impact on the property investment market in New Zealand.

"The proposals will create disincentives to invest in property, especially for small-time Mum and Dad investors," he said.

The issues paper says the present depreciation regime on rental housing properties, that currently allows an annual deduction of 4% of a building's diminishing value over 50 years, may be "too generous".

Accordingly the issues paper advocates replacing it with a limited straight-line depreciation of 2% a year (which would be equivalent to about 3% a year on a diminishing value basis).

"This means that, for example, a landlord who owns a $150,000 building will have their taxable income increased by around $7,500 over the first six years - forcing them to pay an extra $2,500-$3,000 in tax over that time," Paddon says.

Paddon says under the proposals tenants are the ones who will suffer as landlords will need to increase rents to recover any cashflow losses and to maintain yields.

The Government should not be trying to "cool" the housing market down by making changes to tax laws, nor should it be discouraging investment.

Paddon says market forces such as rising interest rates and falling immigration are cooling the market.

"The Federation is opposed to any changes to the current depreciation regime on residential rental housing that has been working efficiently and well for the past 10 years."

Paddon said while it was good that the minister clarified some of the thinking around the paper, there are still many uncertain issues.

For instance the Federation is also worried that the Government may make any tax changes retrospective.

"Dr Cullen needs to assure investors that any changes to the depreciation rules will not be introduced on a retrospective basis."

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