IRD to target property investors

Property

Government to give Inland Revenue an extra NZ$6.65 mln a year in order to get an extra NZ$45 mln out of property investors

16th May 13, 3:44pm by David Hargreaves

<a href="http://www.shutterstock.com/">Image sourced from Shutterstock.com</a>

Property investors are going to feel the hot breath of the Inland Revenue Department more strongly on them after the Government committed an extra NZ$6.65 million a year in the Budget for the IRD to pursue property investment tax compliance.

Revenue Minister Peter Dunne said the move was expected to return about NZ$45 million a year in taxes. The extra funding will begin in the 2014-15 financial year.

"This continues the Government’s focus on ensuring that everyone pays their fair share of tax," Dunne said.

Ernst & Young partner Jo Doolan was scathing on the move.

"Property investors are once again the target of the tax office with another NZ$7m handed out to squeezing $45m in extra taxes from Property investors," she said.

"With around NZ$7.1 billion of taxes a year lost due to the great untaxed cash economy the budget does not mention anything about targeting tax evasion. While it is easy to argue the cash economy will always exist; these cash businesses jeopardise our legitimate taxpaying businesses who struggle to compete on price.

"Not continuing to proactively and loudly target the cash economy is in my view unacceptable."

Dunne said the Government had been very satisfied with the work that IRD had done in the area of property investment over the past few years.

"Since July 2010, about NZ$110 million has been raised from additional property audit funding – that is a healthy return of NZ$6.60 for each dollar invested.”

An officials’ issues paper was also being released today, with proposals to clarify the date of acquisition of land as it affects people who acquire land specifically to resell it and who are generally taxed. The proposals seek to clarify the issue. Consultation will close on June 28.

"Again, it is important that everyone pays their fair share of tax if we as a nation are to fund essential services such as health and education,” Dunne says.

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

54 Comments

by notaneconomist | 16th May 13, 4:51pm 1368679886

I fully agree with Jo Doolan, the untaxed cash economy is not contributing and this is a cost to other tax paying business's. Lets see no ACC, no OSH, No GST, no income taxes, no accountancy costs, no legal costs, in fact no compliance costs.

Great message to those dealing in the untaxed cash economy - keep on doing it because the IRD is not interested in you.

He aint to interested in reviewing these either.

Tax treaties that allow off-shore investors a tax free windfall on income in NZ.

by bigblue | 16th May 13, 5:04pm 1368680643

Should the words property investor not be changed to property speculator in the above item.

by Boatman | 16th May 13, 5:25pm 1368681918

What about builders who build a house , occupy for one year, and then sell?

They sell as a primary residence , no tax , but it seems to me the intention was always speculative and the gains should be taxed ?.

by steven | 17th May 13, 7:32am 1368732725

I would say yes they should pay tax as the intention was always to sell. They might get away with that once but I'd suggest a string of such would see the IRD tax them, mayb even jail them for tax avoidance...Id hope so anyway.

regards

by Chris_J | 17th May 13, 1:28pm 1368754112

They are already taxed if they buy and sell within 10years.

However many are not aware of this rule and are evading taxes.

by scarfie | 16th May 13, 8:32pm 1368693120

The news for you all is that there is a cannibilisation game starting as the growth game is over. Come to a place near you soon and property is New Zealands number one game (not rugby!) so property investors will be first in the firing line. I can only LMAO as the stakes slowly ramp up.

by steven | 17th May 13, 7:40am 1368733213

Yep....everything needs to grow, its in the DNA, therefore some sectors with state sanctioned or other monopoly will still be able to grow but other areas therefore will be taking a double whammy....thioer loss from the shrinking "pie" plus the loss from the sectors still growing...

I think we have seen that for 20 odd years where the financial sector has grown at the expense of much else. just look at the numbers, the top few % in hedge funds etc have taken all the gains. The Q is now to pick whats going to shrink if not collapse....the biggest and obvious target is consumer spending which in turn means commercial property. Knocks to that then feed into pensions and investments etc. Then things like HP and credit demand will simply not be used. All very convoluted and complex....and messy...

regards

by jh | 16th May 13, 9:44pm 1368697447

Peter Dunne called a capital Gains Tax "an envy tax".

and is supportive of realestate agents as in:

"Last week, after select committee hearings on the new real estate agent legislation, he was up to his same old tricks. However, United Future leader, Peter Dunne, (who calls himself Mr Common Sense) played a card not many expected.

In a release which has probably gone unreported, he says the United Future party “will withdraw its support for the Real Estate Agents Bill…unless there are major changes to the legislation and the sponsoring minister, Clayton Cosgrove, adopts a more consultative attitude.”

http://landlords1.wordpress.com/

The Lancet has a long piece about his dalliance with Big Tobacco.

by jh | 16th May 13, 9:41pm 1368697287

What about the retiree who has several rental poperties which have doubled or tripled and he now sells off every other year?

The beauty of a land value tax is that no one can dodge it, but john Key said "no".

by 2 Tooth Bora | 17th May 13, 1:21pm 1368753708

Theres is a lot of these people buying up most property where the main employers are knowing full well that people want to avoid the commute.

There not working in the area just wanting to ride the back of those who are.

Because these properties are all being brought by these speculators theres no opertunity for your average income to save as the cost is 70% of ones income.

That is why decentralising the main employers to other place than in the city is a good idea.

It would significantly change the playing feild.

by jh | 16th May 13, 10:00pm 1368698448

The $200 billion rental property sector not only pays no tax, but is actually getting refunds when it might fairly be contributing tax of $500 million to $900 million a year, says a report from the last meeting of the influential Tax Working Group.

........

http://www.landlords.co.nz/article/3566/tax-working-group-says-property-investors-pay-no-tax

by Kermit The Frog | 17th May 13, 11:13am 1368746000

The article is dated 4th october 2009. Since then rents have risen, interest rates plummetted and depreciation allowances been removed.

I think you will find the property investment sector now pays a significant amount of tax.

Bernard was screaming from the rooftops when they werent paying tax, it would be nice to see some balance by way of an update on the current situation......

by Smalltown | 16th May 13, 11:20pm 1368703234

Interested in an auction of a brand new home in the bay area on the North Shore / AKL. Builder was an Asian but the owner during the sale process was his mother. Agent had no hesitation in telling me that the arrangement was to avoid taxes for the builder - his next home was probably going to be in the builder's fathers name. Agent told me that the practice was common amongst Kiwi builders also. This house was never lived in by any of the builders family prior to selling. In fact it was only recently finished.

I am staggered that the info is so readily admitted to the general public yet the IRD either don't know about it or are powerless to gather taxes on the process.

By the way at the auction there was one European in the room bidding. There were approximately 40 Asians - not all bidding. It was like a day out for some of them. Also noted today was the latest Barfoot and Thompson Top Sales agents in Akl. Out of the top 25, 19 were Asians so not only are the Asians buying the houses, Asians are virtually controlling the selling process also.There is a revolution going on in Real Estate right under our noses and I believe recent comments by Bank and Real Estate personnel that immigrants are not affecting house prices are way off the money. I suspect they are trying to maintain the run by not upsetting the applecart.

by steven | 17th May 13, 7:28am 1368732496

Or asians are more willing to pt the hours and effort in, which would be far more typical.

regards

by jh | 17th May 13, 9:29am 1368739768

What about a language advantage and connections?

..............

Anti-immigration feeling has no place in the Green party Immigration and Population policies released today, Green MP Keith Locke says

http://www.greens.org.nz/press-releases/greens-counter-peters-welcoming-immigration-policy

by 2 Tooth Bora | 17th May 13, 1:28pm 1368754091

Yes hardworkers driven by Mammon and quick to take advantage of Kiwis and there way of life - which has sadly largerly disappeared as one try to compete with this imbalance

by notaneconomist | 17th May 13, 11:18am 1368746318

Smalltown - builders have to pay taxes on properties they build and sell. There are also other rules which apply in regards to other parties and relationships.

In this particular case they only way I can see that tax could be avoided is if the Mother came under the off-shore investor umbrella. She would then not have to pay NZ taxes if a tax treaty arrangement is in place.

by BigDaddy | 17th May 13, 7:32am 1368732731

Xenophobia rides again.

If Asians are paying big money to buy properties then non Asians (i.e.Kiwis) are receiving that very same money dollar for dollar.

That means Mum and Dad Kiwis have as much chance as any one else from whatever country to compete and win at auction, or build. their dream house.

The only reason Asians seem to be over represented at house sales is that they can be easily recognised.

At the last auction I attended for a very expensive house it looked like over a third of the bidders were Asian. But not so. On enquiry it turned out that the rest were a mixture of Kiwis, Brits, South Africans, Russians and Aussies who all look very similar on the face of it

On even closer enquiry, the "Asians" were not all from China either. They were from Iran, india, Korea, Singapore and even Islanders to name but a few.

To ignorant Red Necks, unless you are white, blue eyed, blonde and European then everyone else is Asian.

by jh | 17th May 13, 9:37am 1368740230

If Asians are paying big money to buy properties then non Asians (i.e.Kiwis) are receiving that very same money dollar for dollar.

..........................................

If Asians are paying big money to buy properties then a few non Asians (or land bankers - popular with rich Asians) are receiving that very same money dollar for dollar.

however for the lump of the pyramid the price is bid skyhigh in their own country.

by Hevi Groswaite | 17th May 13, 8:07am 1368734833

Briiliant! This will take the froth of the housing market. Especially for all those properties owned by companies and trusts. This may even bite a few politicians in the derrier... I doubt it, but that is how the cookie crumbles!

Well done!

HGW

by drelly | 17th May 13, 9:37am 1368740224

As a property investor, I'm happy to see property *speculators* caught by the IRD and made to pay tax. Capital Gains tax won't affect investors like me either as we don't want to sell. I invest for future cashflow.

by scarfie | 17th May 13, 10:02am 1368741764

The unearned income from rent is no different from that earned from capital gains. If you didn't make it you didn't earn it.

by drelly | 17th May 13, 10:11am 1368742284

I think you're confused. Capital gains are an increase in property value, which obviously isn't income unless it is sold or drawn upon. Also, rent is only taxable income if it's a profit.

And as for "if you didn't make it, you didn't earn it"... If you never come to realise that you don't have to work an hour to make money, you will never have any money.

by scarfie | 17th May 13, 10:15am 1368742529

Oh my clarity is light years ahead of yours but I live in hope that people that think they are clever because they invest in property will think a bit deeper about the wider effects of their destructive behaviour on the community.

I will repeat something I quote here often, just for you drelly. The investor seeks security through the accumulation of wealth but doesn't realise the unearned income from those investments is destroying the secure society in which he wishes to live in to enjoy that income.

by drelly | 17th May 13, 10:24am 1368743079

No, I think I'm clever because I know what "income" is and you don't. I also understand where the "unearned income" comes from. Although, you're deluded if you think it is "unearned". Property investment can be a stressful, risky way to make money and I've seen a lot of people lose their shirts doing it. Next time I'm working on a house on the weekend or holiday, I'll think of my "unearned income" and have a chuckle.

If you had any experience in managing tenants, you would realise that the reason not everyone owns their own home is that most people are terrible at managing money and spend it on crap they don't need rather than saving it.

by scarfie | 17th May 13, 10:32am 1368743573

I will forgive you the ignorance and assumptions, I guess, as you are unfamiliar with my background. So your weak reasoning says that if your investment involves a risk of loss then returns from it can't be unearned income? Haha good one.

While you are nitpicking on semantics you miss the larger picutre. But it is alright, I can forgive the cognition deficit as well as you struggle to justify your bahaviour, it is common around here, and in fact at large.

by drelly | 17th May 13, 10:39am 1368743976

What a load of waffle. I doubt there are too many people losing sleep over your definition of unearned income.

I remember you as one of the Bernard Hickey cheerleaders when he was predicting 30% drops in property values a few years ago. Myself and a few other investors came on here and explained why it was rubbish but none of you groupies listened.

Since then Bernard has cashed in his massive tax-free capital gains on property and moved to Wellington and is now predicting a $1m average property price for Auckland within a few years. That's probably a signal it's time to sell everything and get out!

by scarfie | 17th May 13, 10:45am 1368744338

Nice side step, I can see that debating with you is a waste of time as you roll out the fallacies one by one. That is the real waffle there drelly as you have used at least three so far.

Btw when you resort to fallacies it means you don't have an argument, you have in effect already lost.

by drelly | 17th May 13, 10:47am 1368744462

Side-step of what? You got the definition of "income" wrong. Prove otherwise if you can.

Also explain what fallacies?

by scarfie | 17th May 13, 10:57am 1368745061

My original statement to you is technically and grammatically correct.

I don't know what is worse, using fallacious argument deliberately or using it in ignorance!

by powerdownkiwi | 17th May 13, 11:14am 1368746086

Scarfie - your are right, he/she is wrong, but we need to tidy up the definitions maybe? :)

Income - as in money, can be had at any figure. Most folk (I suspect including your sparring-partner) mentally transfer the value of the purchasable, to the proxy itself. It's wealth that is limited; you can have unlimited proxy, but not an unlimted amount of purchasables.

Therefore income does not guarantee wealth. Same problem with Hugheys MM.

by drelly | 17th May 13, 11:20am 1368746411

See below. He's not right.

by scarfie | 17th May 13, 11:25am 1368746732

Oh I was saving that one Murray, in fact your line of expecting it (income) to buy bits of the planet. But there wasn't comprehension of the first statement so it stalled out :-) I was actually quite specific with my grammar an left it open enough so the converstation could go somewhere meaningful, only your contribution has supplied that. Always worth trying to see if there is a willingness to explore, but the resistance is strong with this one.

by notaneconomist | 17th May 13, 11:51am 1368748262

PDK - you have frequently described wealth as owning pieces of the planet and consider that its limited.

This makes the assumption that wealth is generated from those pieces of the planet.

Wealth has nothing to do with owning those pieces of the planet wealth is created by controlling those pieces of planet. You don't necessarily have to own them to control them.

by drelly | 17th May 13, 11:27am 1368746820

You said: "The unearned income from rent is no different from that earned from capital gains. If you didn't make it you didn't earn it."

1. "unearned" is your opinion only. BUT I did look it up and realised that you might be referring to an economics definition of this - if so, would have been good to clarify that earlier...

2. "income" is money received. Capital gains are not received. They are a theoretical increase in value that does not eventuate until a sale is made.

by scarfie | 17th May 13, 11:59am 1368748787

Is it not best to make sure of what you say so you don't make yourself appear an idiot. Lazy also in this instance. I assume you can use the internet so surely it isn't such a large step to type a search into google for "fallacies of argument" or "capital gain". For instance the primary response from Wikipedia: "A capital gain is a profit that results from a disposition of a capital asset, such as stock, bond or real estate, where the amount realized on the disposition exceeds the purchase price. The gain is the difference between a higher selling price and a lower purchase price. Conversely, a capital loss arises if the proceeds from the sale of a capital asset are less than the purchase price"

Not only that but I my statement quite specifically refers to the income received from capital gains. But just because you are too stupid to understand that statement means it can't be right eh?

On top of that the article is quite specifically about tax recovery, which can only be done from income as we don't have a land tax.

So quite wrong on all angles there drelly, but do you want to keep trying?

by drelly | 17th May 13, 1:49pm 1368755353

You use terms that you know are being mis-interpreted because they are also able to be taken another way and yet you keep arguing as if we're discussing the same thing. Capital gain is also an increase in the value of a capital asset, which I'm sure you know. I'd rather clarify a point than keep fighting to be right knowing wires are crossed.

by scarfie | 17th May 13, 11:48am 1368748132

Well you answer your own question there Animal Lover, decentralise and downsize. What you have there by the sounds is a real community, good on you for that. Don't scale it, just help it repeat :-) The first part of Isaih 65:22 is the earliest example I know of that states the principle involved, which also says that drelly is horribly wrong.

There is actually a very sound psychological and architectural basis for building your own home. Better to build what you want rather than what someone else thinks you want. It doesn help to have good examples to design from but in this country they were never established, the pioneers came from places where the models has already gone wrong.

by scarfie | 17th May 13, 12:59pm 1368752347

I see the current model as broken and getting worse :-( The trick to unearned income is the accept the principle as absolute but also accept there will be exceptions. The exceptions don't undermine the principle and society functions at a certain level of exceptions. The wealthier society is then the more exceptions it can cope with. I would argue we are past the peak of exceptions and have been since the population growth rate started to decline in 1961. We had a one time splurge on fossil fuels and it is coming to an end, but everyone is still out to grab a piece of the shrinking pie, hence local council behaviour we have both eluded to.

I know I am talking a macro level as a response to your specific example. But with your son, the $50K you invest is representative of peak resources, your son will never realise the same buying power that the $50K provides to you. I am an X and I see increasingly people of my age camped with their parents. The answer to your question goes deeper and stems from who grew the food you ate while building the house for your son.

The only answer I see to restrictive and malfunctional building rules is to go transportable. Building act only applies to permanent structures. Will skillful design a pleasant habitat could be had. Afterall the likes of decks and landscaping are largely free from restrictions.

by notaneconomist | 17th May 13, 12:36pm 1368750975

Scarfie - Isaiah 65:22 this mean that rent is quite OK.

No longer will they build houses and another inhabit - you will enjoy the work of your own hands.

Think it fits in pretty well with: Thy shalt not steal - this means we need to pay for whatever it is so again rent is quite OK. Not to pay rent would be seen as stealing as you would be inhabiting anothers property that they built. The bible has quite a lot on business.

Thy shalt not covet anothers property.

by drelly | 17th May 13, 1:51pm 1368755511

You're quoting scripture and saying I'm wrong... if it be thus, let your imaginary friend in the sky strike me down.... Ack... gurgle... gasp... pffft.

by scarfie | 18th May 13, 7:57pm 1368863825

Yes for the most part religious proponents and not very intelligent and throw their ability to reason out the window, but right now you are not even making that level drelly because at least they are taught morals. Your attempt to make your unearnt income look holier than that from capital gains is really quite dumb. I am afraid it is looking increasingly like you are simply not very bright.

You also disregard a piece of wisdom based on the source, yet another fallacy. In fact all your posts are completely worthless because they are all fallacies (one of my own. ha). This is of course compounded when you outline that you don't even know what a fallacy is. Do you know anything?

by drelly | 18th May 13, 9:56pm 1368870970

Wow... you're really obnoxious. You should go to church more. Religion may be for the gullible but at least they're mostly polite. I don't need or desire to justify anything to you and didn't try to.

by Ralph | 23rd May 13, 10:35am 1369262151

"for the most part religious proponents and not very intelligent"

Briliant. Einstein, Godel, Newton, Pascal, Galileo, Faraday, Babbage, Pasteur, Kepler. All not very intelligent (if we were to believe you).

I reject your premise on the basis it does not fit the facts.

by scarfie | 23rd May 13, 12:28pm 1369268895

At least you did better than drelly and rejected the logic of the argument rather than the fallacious of approach of rejecting the source in its entirety.

However you still lose as I did intentionally pre-qualify it by the "most part" bit. Difference being that those you list can form a coherent argument for their beliefs. The greater part of what I say is that most can't back up their believe with argument or reason, just like drelly can't in opposition. You don't really lose because you are thinking :-)

by Ralph | 23rd May 13, 12:45pm 1369269924

The disciplne we call science, as we inherited it, was most certainly built by people who were, at the very least, theists, often a lot more. Even today just under 40% of surveyed scientists profess a faith that could be labeled religious.

My experience has been when rational thought runs out prejudice takes over; which often means playing the man and not the ball.

by notaneconomist | 17th May 13, 11:11am 1368745903

Scarfie - many people don't MAKE it in life simply because they wont go out and earn it.

Do you really expect people to go out and build houses (that should be considered making it by your definition) and then not charge for the use of it?

Some people make trouble and they get paid for too.

by scarfie | 17th May 13, 11:39am 1368747578

While there are always those with a slave mentality I don't think you are correct on this one. Only a very small percentage of people (in this country) are directly invovled in producing something. Lets for arguments sake put that number at 20%. There is a psychological benefit to working, but only if the work is meaningful. I would say meaningful gets pretty close to being directly linked to producing something. So that means you have 60% of people (20% essentially unemployed) involved in work that isn't meaningful, souless if you like. Is it any wonder that some don't value work?

Put it this way, isn't building your own house to live in going to be more meaningful than building a house for wages for someone you don't know? Where your boss as an intermediary makes a profit from your labour? How about all the other middle men in the chain such as my comment regarding local councils earlier?

by Ralph | 17th May 13, 12:06pm 1368749213

You should probably define "producing".

Does any service industry "produce" anything?

Does any finance industry "produce" anything?

Does nay educational institution "produce" anything?

Also, you appear to be suggesting that only work you define with this word "producing" is psychologically meaningful. Do you have any objective basis for that claim?

by scarfie | 18th May 13, 8:00pm 1368864019

Partly answered in response to Animal Lover. Answer to the first three is no. Last is quite a fair question, take a look into the arts and crafts movement of the 19thC and in the works of Ruskin or Morris. I do of course make a sweeping statement but I did qualify it. Meaning can come from other works, but only if you have a full belly if you get my drift.

by BigDaddy | 17th May 13, 10:04am 1368741880

The biggest rort of all is where Mum and Dads buy a home to live in and a year or two later, after a lick of paint, resell for a big profit, then go and buy a cheaper place and keep the change tax free.

What should be done, including Mum and Dads, is if they re invest all the proceeds of sale into another home that's tax free, but if they keep the change then CGT applies.

Exceptions could be selling to go into a retirement home, or selling after a certain number of years, or after major renovations etc.

It's the "quick flick" Mums and Dads who are by far the biggest specuators.

by drelly | 17th May 13, 10:09am 1368742158

There's a lot of people who've done that too. There's an old wive's tale that says you can do it once a year. Total rubbish.

by Christov | 17th May 13, 1:43pm 1368754995

Olly, I've sent Dunne your details.......but , there is a strong case for you to gain immunity on any tax issues you may have been ...putting off, so to speak

Dunne likes a good rat, and appears willing to give grace if you could bring yourself to rat out twenty or so of the cheesy dodgers....Big Daddy would be a good start , but I fear he sounds fairly legit as opposed to many of the R.E posters who frequent the pages here.

Anyway think it over....I'm seeing Dunne next week on some...er... other business, but happy to hook up a meet for you in a deserted carpark or something.

Oh btw...code name Bernstien...as I don't think he'd know you if you were'nt his hairdresser.

by drelly | 18th May 13, 9:55pm 1368870939