Loss ring-fencing ups war on renters and owners

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, Tenancies War spokesman Mike Butler said today

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 sub heading “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 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, bringing 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, and that as debt is reduced and income increases, investors become taxpayers, with some paying tens of thousands of dollars in tax each year,” Mr Butler said.

“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,” he said.

“With rents at historic highs it is unlikely owners could add an average extra $137 every week to rents,” Mr Butler said.

“This means owners must choose between hanging on or selling,” he said. “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,” Mr Butler said.

“As a result, rents will continue to rise and homelessness will increase,” he said.

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, Mr Butler said.

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.

Stop the War on Tenancies is a group that since last October has been highlighting the evidence that successive governments have ignored while creating rental property policy.

116,000 loss-making rental property owners may sell

Confirmation from Inland Revenue last week that 116,000 owners declared a loss on earnings in the 2016/17 tax year shows that ring-fencing of tax losses for rental properties could soon result in 116,000 fewer rentals, Tenancies War spokesman Mike Butler said today.

“The response to my request under the Official Information Act also said that the average loss declared by each owner was $7138, and that includes both individual and non-individual (trusts, partnerships and companies) taxpayers”, Mr Butler said.

Owners who run a rental property at a loss do so to claim the losses against tax paid on their day job to get a refund.

“Advice to the Government (see http://tenancieswar.nz/other/loss-ring-fencing/)  about the impact of loss ring-fencing has proceeded without knowing how many private rental property owners are negatively geared”, he said.

“A figure of 40 percent was given in that advice without stating the total number of private rental property owners. The 116,000 number is much higher than I expected”, he said.

“Once an owner has to top-up his or her rental with $138 every week from the day job with a greatly reduced chance of ever getting it back, it won’t be long before that owner decides to sell,” he said.

“Inland Revenue and MBIE advised the Government early last year that ring-fencing losses would result in the sale of an unknown number of properties to owner occupiers, reducing availability of rentals and increasing rents by around 10 percent”, Mr Butler said.

MBIE thought the housing shortage would increase by 16,600 over the two years from 2018, accounting for 6000 Kiwibuild homes over that period.

“The briefing papers were done under the expectation that KiwiBuild would deliver 6000 dwellings in two years”, he said.

But just three weeks ago, Housing and Urban Development Minister Phil Twyford said he could not guarantee that the Government will meet its target of having 1000 KiwiBuild houses built by July so the 6000-extra-dwelling figure is off the table, he said.

“If every negatively-geared owner sold to an owner-occupier, and if each owner sold one property, the shortfall would be more like 116,000 properties, not 16,600”, he said.

It’s decision time for negatively-geared owners, but it is also decision time for the Government that may unwittingly create a further massive shortfall of rental properties by not listening to advice, he said.

Stop the War on Tenancies is a group that since last October has been highlighting the evidence that successive governments have ignored while creating rental property policy.

Submissions on the bill close on February 28. To make a submission, go to https://www.parliament.nz/en/pb/sc/make-a-submission/document/52SCFE_SCF_BILL_82431/taxation-annual-rates-for-2019-20-gst-offshore-supplier

Impact of rental property tax change could be huge

Impact of rental property tax change could be huge

The impact of a law-change to ring-fence rental property tax losses could be huge and sudden because owners absorbing loss with no prospect of gain will sell, Tenancies War spokesman Mike Butler said today.

The Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Bill  that introduces ring-fencing of tax losses for rental properties passed its first reading today.

Based on comments from Inland Revenue reported yesterday, there could be around 104,000 private rental property owners who lose money every week expecting that loss to reduce their tax liability while hoping to sell in the future and make a capital gain, he said.

If rental property tax losses are ring-fenced from April 1 next year, and if capital gains are to be taxed, as the Government is pondering, the rational option for negatively-geared owners is to sell now, Mr Butler said.

If each of these owners has two properties, and if each sells to owner-occupiers, that could take 208,000 properties away from renters looking for a home, he said.

Of course, this is speculation, but the problem is that neither Revenue Minister Stuart Nash nor Housing Minister Phil Twyford know how many owners are negatively geared so they do not know the impact of this change, Mr Butler said.

Owners won’t necessarily protest about this rule-change. They will look at their financials and either absorb the loss, increase the rent, or sell, he said.

The prospect of a capital gains tax makes selling now the preferred option, he said.

The Ministers should provide evidence of both the benefits and the costs of this proposed law change, Mr Butler said.

Any failure to do so would show that we have a government running on religious zeal instead of sound evidence, he said.

The known figures are that there is a total of 588,700 rental properties in New Zealand of which 64,500 are state or social housing, leaving 524,200 private rental properties.

The number of private rental property owners could be 262,100 assuming each have two properties.

The number who are negatively geared may be deduced from a statement from IRD that 40 percent of owners had rental losses in any one year (See below).

The group Stop the War on Tenancies aims to empower both owners and tenants in the face of ongoing government ineptitude with housing.

See

See: Officials warn tenants could take impact of end of tax breaks for landlords. https://i.stuff.co.nz/business/109254032/officials-warn-tenants-could-take-impact-of-end-of-tax-breaks-for-landlords?fbclid=IwAR0jJ6T4Dxs5y54EIMkIF7TOtmxU8wLkoHNyuCJ3_eg1IgfK4dr7mtKh0sg