PM Key announces Budget 2015 changes to crack down on property traders selling within two years

By Bernard Hickey

Prime Minister John Key has announced Budget 2015 will include a range of measures to crack down on property speculators who sell houses within two years, and he has announced foreign buyers will have to register with the IRD and have a New Zealand bank account.

In a release titled 'Taxing property gains fairly', Key announced the Budget would "include extra measures to ensure that people buying and selling residential property for profit - including overseas buyers - pay their fair share of tax."

"People calling for a new capital gains tax often overlook the fact that under existing rules, anyone buying property with the intention of selling for a gain is liable for tax on that gain," Key told the National Party's Lower North Island regional conference in Lower Hutt on Sunday.

"Everyone - whether from New Zealand or overseas - should pay their fair share of tax according to the law. So we need to ensure the existing law is enforced."

Key said the Budget this week will contain several measures to bolster tax rules on property transactions and to help Inland Revenue enforce them.

They include:

  • Providing Inland Revenue with extra funding for compliance and enforcement. 
  • Requiring non-residents and New Zealanders buying and selling any property other than their main home to provide a New Zealand IRD number.
  • Requiring non-residents to have a New Zealand bank account and to get a New Zealand IRD number.
  • Introducing a new "bright line" test to tax gains from residential property sold within two years of purchase, unless it's the seller's main home, inherited or transferred in a relationship property settlement.

The changes will be subject to consultation and take effect on 1 October this year.

The "bright line" test will apply to properties bought on or after that date.

"These measures will not affect New Zealanders' main home, although existing tax rules will still apply in addition to these new steps," Mr Key says.

"They are aimed squarely at ensuring that property buyers - including overseas speculators - who buy residential property with the intention of selling for a gain pay their fair share of tax as required by the law," he said.

"It's not unreasonable to expect that if you buy an investment property and sell it for a gain within two years, then you should be taxed on that gain. "

"This is quite different to an investor buying with a long-term view of renting their property to tenants. And it's completely different to New Zealand owner-occupiers who have worked hard to buy their family home."

Key said that while the current law was clear about taxing property gains, decisions often relied on the intent of the buyers or an assessment of their intentions by Inland Revenue.

"One of the reasons this has become an issue, particularly with overseas investors, is that we don't always have good information about them. And some overseas investors can be difficult to track down - even if Inland Revenue knows they owe tax."

Key said New Zealanders would expect Inland Revenue to apply the same tax rules on overseas property investors that are applied to New Zealand property buyers.

"That's what these changes are about. As New Zealanders, we expect each other to pay our fair share of tax. "That same requirement must also apply to overseas residents. The Government welcomes overseas investment, but in return those investors must follow our rules when it comes to tax."

Here is a statement below from Bill English and Todd McClay with more detail on the changes.

Budget 2015: Extra property tax measures
The Government is taking extra steps to bolster the tax rules on property transactions - including those by overseas buyers - and to help Inland Revenue enforce them, Finance Minister Bill English and Revenue Minister Todd McClay say.

The tax measures are also expected to take some of the heat out of Auckland's housing market and sit alongside the Reserve Bank's latest moves to address associated financial stability issues, Mr English says.

"Taken together, they will help Inland Revenue enforce existing tax rules, provide it with extra resources and ensure that property investors pay their fair share of tax - whether they're from New Zealand or overseas."

The Budget this week will confirm that, from 1 October this year, the following will be required when any property is bought or sold:

*         All non-residents and New Zealanders buying and selling any property other than their main home must provide a New Zealand IRD number as part of the usual land transfer process with Land Information New Zealand.

*         In addition, all non-resident buyers and sellers must provide their tax identification number from their home country, along with current identification requirements such as a passport.

*         And to ensure that our full anti-money laundering rules apply to non-residents before they buy a property, non-residents must have a New Zealand bank account before they can get a New Zealand IRD number.

*         In addition, a new "bright line" test will be introduced for non-residents and New Zealanders buying residential property, to supplement Inland Revenue's current "intentions" test. Under this new test, gains from residential property sold within two years of purchase will be taxed, unless the property is the seller's main home, inherited from a deceased estate or transferred as part of a relationship property settlement.
"Tax rules are complex and affect people in different ways, so we will consult on these measures before they take effect on 1 October," Mr English says.

The "bright line" test will then apply to properties bought on or after 1 October.

To further ensure overseas property buyers meet both existing tax requirements and those of the new test, the Government will investigate introducing a withholding tax for non-residents selling residential property.

Officials will consult on these details with a view to this withholding tax being introduced around the middle of 2016.

Mr English reiterated owner-occupiers of residential property will not be affected by the new measures when they sell their main home, or if property is inherited from a deceased estate or transferred as part of a relationship property settlement.

"It's important to reiterate that these changes will not apply to New Zealanders' main home, although existing tax rules will still apply in addition to these new measures," Mr English says.

"It's equally important that people buying residential property for gains meet their tax obligations, whether they are from New Zealand or overseas.

"The combination of collecting IRD numbers and introducing this new bright-line test will help ensure that non-residents pay their fair share of tax in New Zealand."

Since Budget 2010, the Government has provided Inland Revenue with $33 million more for property tax compliance and enforcement. In return, up to March this year, this has resulted in an extra $258 million of assessed tax revenue - a return of over $7.80 for every $1 invested.
The Budget will provide Inland Revenue with a further $29 million for property tax compliance, taking its total budget for work in this area over the next five years to $62 million. This is expected to generate around $420 million of additional assessed tax in the coming five years.
Mr McClay says the extra information disclosure requirements for property buyers, particularly for non-residents, will help Inland Revenue track and identify transactions that are likely to be taxable.
"In particular, they will allow Inland Revenue to share information about non-residents with overseas tax authorities," he says.

"Under the current law, anyone buying property with the intention of selling it for a gain is liable for tax on that gain. As the extra tax assessed confirms, Inland Revenue has had good success in enforcing the existing rules in recent years.

"So we're providing Inland Revenue with more resources, information and tools to ensure that both New Zealand and non-resident property investors pay their fair share of tax.

"The new bright line test will create a clearer rule that ensures buyers who sell properties within two years are taxed on their gains, subject to the few exemptions we've set out.

"They will still be subject to tax under existing rules  if they buy a property with the intention of selling the property for gain - even if they do so outside the two-year "bright line" period," Mr McClay says.

And here's a statement from Labour leader Andrew Little in response.

John Key’s weak measures to rein in the astronomical profits property speculators are making are an admission – finally – that there is a housing crisis, Labour Leader Andrew Little says.

“But yet again National is tinkering with the housing market. The moves announced today are tentative and incremental.

“The Prime Minister is creating a massive loop hole with his new ‘bright line’ test which will exempt speculators who hold onto their properties for longer than two years.

“A tax which only applies to sales within this arbitrary period will not deter the land-bankers and will only capture the small number of short-term buy-and-flick speculators.

“It will take two-and-a-half years for this tax to fully come into effect. That is a long time to wait when Auckland house prices rose over $100,000 last year.

“For years the Prime Minister has denied there is a crisis, refused to admit foreign investors are pushing up house prices and said there is no need to dampen down housing demand. Today John Key has been forced to eat his words.

“This is not only an admission there is a housing crisis, it is an admission that the intention test in the current law is not working.

“However, it is unclear whether this measure will have much effect on Auckland’s run-away housing market. I call on the Government to release its figures showing how many speculators will be caught and how many will escape untouched.

“What is needed is a more comprehensive and wholehearted crack down on speculators, alongside Labour’s policy of banning residential property sales to foreign speculators,” Andrew Little says.

 

 

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150 Comments

Great. Always felt that the rationale for a capital gains tax should be to raise more tax, as opposed to put a break on house prices. And the withholding tax on non-resident capital gains is also a good move. Again - more tax will be collected (hopefully) particularly in the case of an external shock and corresponding capital flight. And it will be needed, as the likelihood is in such a global event, our unemployment will rise quickly.

All good - and hopefully they'll keep introducing new interventionist type measures if required in future.

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" Ponytails " Key is awake ???? .... must be an election year ....

... good on him ... 7 years late .... but alike Eric the Eel ... if you watch him long enough he does get across the line ...

Just one more thought John , why not adopt the idea from Australia of limiting foreign investors to buying brand new houses and apartments ... rather than let them gobble up existing stock which is needed by people who actually live here ...

... apparently accommodation construction is going gangbusters in Oz , as foreigners pour money into new developments ...

Clearly Gummy it is because we have no data to actually prove we have a foreign investor problem, which is what John Key said.

What about tracking foreign buyers so we have have then a rational informed debate about policy settings? Absolutely not and out of the question, per John Key.

Outrageous isn't it.

Whew .. JK isn't a spy working for the Chinese... i was beginning to wonder.

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Is this the Goldilocks recipe for National? Doing just enough to be seen to be doing something but not enough to actually make a difference?

Too little too late, but a small step in the right direction. What is the combined effect of these changes and the RBNZ investor LVR on October 1st?

Yes.
Never mind the quality, feel the width

I really don't know why anyone is excited. Neither this nor the proposed LVR extensions will make any difference to house prices.

The current rate of building in Auckland is about 8,000 new dwellings a year.Of those about 5,000-6,000 are needed just to house the people being born there. The other two or three thousand is supposed to house everyone else coming to Auckland and make a dent in the chronic overcrowding stats.

In the face of such overwhelming demand for housing these minor tweaks are just peeing into the wind.

This policy is another "do nothing" policy designed to play well for the cameras but little else.

Its not even trying to make house prices cheaper Kumbel. Why would the Nats want to do that?

Its about clarifying the vagueness around "intention" at the time of buying investment properties.
Eg. People can buy 'off the plan' then sell a year or so later at significant profit, then don't pay any tax on the gain they make, claiming they didn't buy with the 'intention' of selling it. It's basically saying that if you buy a property that is not your main place of residence, then sell it within 2 years, any gain is taxable - regardless of intent at the time of buying. It means the IRD can just apply the tax rates in such cases without having to debate about the buyers 'intent' at the time of purchase. Non-resident investors ditto. It is in effect defining you as a speculator for tax purposes if you buy and sell within 2 years. I think this is fair, esp as everyone will know the rules, which apply to any investment property bought from 1st October. For long term property investors it won't really make any difference, nor for first home buyers, nor likely is it going to make any difference to property prices. So everyone is happy, (apart from the speculating tax cheats - who wouldn't likely vote Labour anyway), so its a win win win policy for the Nats.

...sentiment is a major factor affecting property values. I think you will find the overall sentiment regarding housing in Auckland will be getting hammered!

Can we assume that land bankers will be slugged?
How about residents acting as a proxy for non-residents even when there is a familiar situation like students?
Here comes the Swiss cheese!

I'm actually very pleased with this announcement as it captures those who have been coming under the IRD's radar!!

The IRD have been absolutely useless in recognising the group who fall under their radar....to busy chasing up legitmate businesses and not capturing the real cheaters.

The existing law was clear enough but simply ignored. IRD has been structured to catch the law abiding but just is not in the game in the cash only industries, or for those who simply just neglect to tell IRD they exist. Given we now have many who come from cultures where you only pay tax when somebody comes around with a gun, the IRD failure has been gigantic.
This is a good move and the IRD number requirement is good as well. But IRD needs to be get out and pound the beat more. Imagine if they door knocked through Auckland's Dominion Road area and asked tenants who they paid their rent to, and followed up each and every one. The results would be electrfying.

Won't hit land bankers at all if they go on to develop the land themselves. The land they currently own is an input into the development process so they are not trading the property. They will, of course, be taxed on the profits they make from the development :-)

That is particularly so if the land has any plausible commercial use such as a farm. It would be very hard for the IRD to claim that someone was a property trader if something else was going on.

There may be a few more applications for residency. Something we need like a hole in the head.

Operation "Foxhunt" might become more effective. Any offshore buyer now has to identify themselves, absolutely, as to who they are and where the funds came from. It may put off some that want to become anonymous in New Zealand.

yes I wonder if this info will be passed over to those that ask i.e china

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I have a feeling the giant panda was equally as unimpressed as the fledgling kiwi when Ponytail told them they don't have/collect that sort of information.

My guess is, the giant panda is a sort of take no excuses type - and this initiative by Ponytail is a direct response to his growl.

Indeed

JK's hand has been forced by Xi Jinping and moves in Australia over the past month

they have rolled out phase two, sky net and NZ is number 4 on the list for people and money fleeing china

PMs minders/spin doctors have been watching their polling feedback 'something must be seen to be done about Auckland housing' - so an announcement from the PM.

I wish the "bright line" test was retrospective.

Triple: If IRD pulled it's finger out the existing law is quite adequate. for example: anybody who has bought a property with negative cashflow has only bought it for one reason which is capital gain, and that can and should be taxed under the present law.
So blow all the feeble excuses the speculators make. These gains should be taxed, can be under existing law, and can be retrospective. In my view, IRD can do this now and it would be for a significant percentage of property transactions in recent years in Auckland.

I agree KH and have thought this for many years.

The only area of complication was that of 'intention' and everybody knows intention can only realistically be established through repetition - i.e. developing a pattern. Although in theory a speculator could be taxed on their first trade, in reality this happened rarely due to no pattern being established.

Whereas this "bright line 2 year rule" would remove the requirement for repetition/pattern, and would catch people potentially on their first flip. Hence retrospective (say going back 5 years) could have been a meanie!!

Actually the reason for buying with a negative cashflow can be to get off the rent-trap. As long as the person has only ownership/access to one property (ie private or through a Trust) then one home, if not quickly resold, can be negative geared. One of the entry options is to purchase ones' intended place, then rent it out and live somewhere doghouse cheap, and poor the money + rent off the mortgage to build liquidity. Do this uses the rent to subsidise the interest. It was supposed to the be the method for my second property but my partner at the time moved in, killing the rent (I was going to live at parents for two years, and she was staying at her best mates, who was a very broke student renting of her family).
Loan payments around $500 wk, income $250, rental savings 2 people of $150-200, could make a bit of a dent in the mortgage for 3 years, then we wold have positive cashflow or good home equity.

I thought the IRD considered anyone selling within 5 years to be an investor - so what does this mean? Are we going backwards?

Excellent move.
At last some clear guide lines about "intention" as well as putting a bomb under the spruikers that have been touting how easy it is to make money in property etc .
Every deal will be put through the tax dept and the question asked: "is this your home? No? Sorry tax please"
The off shore buyers will also be targeted and will have to pay as well like the rest of us
The RB may as well shelve its silly LVR rules as these ones will do the job far better.

Actually, all the more reason the 30% investor LVR rule is needed as it was always a stability (not a price-related) measure. Thing is - with a non-resident withholding tax looking imminent, any number of non-resident investors might decide (bear in mind many have multiple properties) to exit before the implementation date. Australians, for example, as the tax treatment rules each side of the Tasman become more similar. Therefore, for bank stability - in what will likely become a falling market - you don't want Kiwi investors with high gearing going gangbusters.

It's all very complementary (tax and monetary) policy to my mind.

Exactly. The LVR restrictions were not about house prices directly or taxation etc...

They are about BANK STABILITY. In my mind, and for that reason, they should make them permanent. They should also ban interest only loans on LVRs above 80% for the same reason.

At last the government is waking up from slumber. They should increase the bright line from 2 to 3 years and start it 1st July, not 1st October. Making foreigners only buy new houses or apartments, like Australia I think is also a great idea.

I'd like to see the non-resident withholding tax introduced with immediate effect - given we need the money :-)!

agree, they should be paying towards NZ

Why even have the "intention" criteria for property gains at all? People who work for wages pay tax regardless of the intention for working.

Because many of the "swing" voters a) own long term rental property and b) own their own homes so such a policy makes the Party that does so un-electable. Now personally I think all interest/profit should be taxed incl asset gains then however PAYE should be reduced.

That will put off many of the chinese speculators & foreign quick flick merchants that have been rampantly active over the last 18 months! Finally they have to properly identify themselves with DL & IRD # etc - good on ya Jonkey

Why two years and why not a lot longer. If I was speculating and could make $1000 a week why would I give that up after a few months. Many speculators will hold for much longer than two years

Probably a lot falling through the cracks having rented place out for a bit then flicking.. often the reno for value increase crowd don't like holding and renting for too long at neg cash flow plus new bathroom/kitchen getting ruined by tenants makes it an incentive to move the place fairly quickly and get on to another do up.

Since these clowns in the market now are paying way above intrinsic value the rental income doesn't even come close to cover the cost of ownership. It's a silly game. As soon as the sentiment turns and the herd decide the capital gains are tapped for the medium term then they will all be wanting to sell.

No speculator in their right mind is going to want to hold a cashflow negative property in a static or falling market.

The negative feedback loop shall be most amusing.

the speculators don't but the money storers do, especially if they believe the market to be cyclic.

Clever

Requiring non-residents and New Zealanders buying and selling any property other than their main home to provide a New Zealand IRD number

That will expose the local proxies who act on behalf of their overseas mates, attending auctions with an iPhone attached to their ear

They will now have to provide their IRD number and bank details to the RE agent and LINZ
If buying a couple of properties each week, every week, the IRD will want to know where the money is coming from, and what they need all those properties for and what they are doing with them

Renting them out? Where are the rents? Hibernating them? What for?

Really?

Of course it depends on the different interpretations of

anyone "buying and selling" a property
versus
anyone "buying" and anyone "selling" a property

its the same as when we invest overseas, why does it take us so long to catch up

So this must mean our Mr. Key waited just long enough for all his friends and family and party colleagues to sort out their own property portfolios in time to not be hit by the effects of this that are now going to hit everyone else. He's a great mate to have.

The phones from the beehive will be hot from the nats ringing nonstop to warn all their "donors" how to structure their holdings

Big Data - bucket loads of it - Que David Chaston?

Will LINZ and IRD and Real Estate Agents and Banks make it available?

Yes they will have to consult long and hard

The time has now arrived for Big Brother to define property owning Family Trusts as being the occupier versus the beneficiaries of the property as a "main family home"

Watch this one. Be interesting. Wait for the squeals. Watch for the exemption. Tricky. Tough.

I'd guess Bill English has already sold the Wellington mansion.

Ok so foreign offshore buyer purchases a property after Oct 1, gets IRD number - 6 months later flicks it, lawyer processes the settlement, money sent back overseas - good luck collecting the tax when the money has already left the country and the buyer is not resident here!

Surely, any tax will be withheld by the purchasers lawyers on behalf of the IRD. It ought to be like the real estate agents fees; unpaid rates etc - they are collected at the settlement process; withheld and paid to the agents/council, and now the IRD, to make sure they aren't avoided.

With LINZ involved, title won't pass to the new purchaser, and registered, until tax matters cleared

They don't do that now bw. The funds will head offshore 100% unless a system is put in place to prevent it. Currently property traders put their accounts into IRD after the end of the financial year and pay tax or obtain a refund. Unless the government instigates some method of capturing the funds before they are repatriated offshore they will never collect any tax from a foreign based trader who does one or two transactions at the same time the pulls out of NZ.

*Yawn* Are overseas investors really buying to make a quick buck? Unless there is proof then perhaps a study would have been prudent before being irresponsible. Maybe overseas investors are buying property to 'park/launder' money instead.

Regardless, good luck with trying to argue against a purchasers 'intent'.

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Easy. Just don't accept the lies we have been told about intent. My previous accountant (since sacked as his dodginess was going to attract attention) even provided me with a sample letter to write to him with some bullshit about my intent on a property purchase.
I don't care, and IRD should not care, about the lies about intent. Anybody who has purchased property with a negative cashflow has purchased it for capital gain. Plain as the nose on their face.
The capital gain is taxable under current law, and should be implemented. And it's retrospective too.

bang on mate

Anybody who has purchased property with a negative cashflow has purchased it for capital gain. That is your opinion.

that or they are stupid.

why else would you buy an overpriced loss making business,

Like I said above. To 'park' money.

I believe "parking money" may be the number 1 reason for Chinese buyers, at least, then when you consider how many multiple purchases appear to have been made by foreigners, including Chinese, you start to see some frightening prospects.
The other thing the govt needs to do is remove residential housing from the Investor category for prospective immigrants as well

Look at the list of top 25 salespeople at Barfoots - almost all are Asian or Indian http://www.barfoot.co.nz/news/2015/may/top-salespeople-2015
Surely that's a sign of foreign buyer and money parking activity

80% and almost all? Almost the same thing??

More interesting is that some of the Asian agents are not the big listers. They are clearly working mainly with buyers rather than sellers.

Barfoots have 38 Zhangs, 37 Wangs, 9 Smiths and 4 Jones, does that tell us something?

"The other thing the govt needs to do is remove residential housing from the Investor category for prospective immigrants as well"
Yes. What a good idea.

Yeah well they changed the Act to include residential housing in May 2011 so it shouldn't be too difficult to change it back

that was a stupid idea, and also makes you wonder who had the idea, why and what was in it for them.

generally not...but at least this will catch the most obvious abusers without sudden major rule changes.

it also starts the "organic" like process of sorting out who is doing what, getting LINZ and IRD, together and making them file traceable information. Current lawmaking is a bit tougher than it was 30 years ago, the amount of computers and data means people expect to be able to quantify and demonstrate the target and effects in multiple reports before the process can be started - where previously it was the "political sell" of the need and favours, and the data was assumed.
they'll still get it wrong, it'll still be expensive, but at least we'll have a paper trail to assess.

The property price doubles every 8-10 years irrespective of whatever speedbrakes comes into play. Don't expect any drop in price probably there will be some sense n stability in the market and tad less competition for few months to come. FHB's don't try to time the market, anytime is a good time to buy property in Auckland as most immigrants continues to settle down here, especially around outer suburbs such as Papatoetoe, Otahuhu, West Harbour, Henderson etc where house prices are still affordable before the current group of migrants (with saving attitude) starts to enter into property market in these areas in the next 2-3 years time. Regarding 30% LVR or 2 years holding period is not going to be a deterrent by any means, the current set of landlords will try to improve cash flow by increasing rents (not speculation, it's a given) to reduce debt burden and percentage of landlords exiting the market will be very minimal to none so don't expect drastic reduction in house prices.

You say all that as if it's a law. It's not. This bubble is going to burst some time. Mr. Key and his cronies are hoping to let the air out slowly and prevent a economic calamity before they've had a chance to escape with their ill-gotten gains from milking the property bubble. That's the ONLY REASON they're doing this now.

They are taking measures to keep the housing inflation around 8-10% as its currently hovering around 10-14% in Auckland depending upon the area. As per reserve bank governor expectation, the 30% LVR measure will reduce the inflation by 2-4% which aligns with current market condition. Banks in NZ is more sensible before approving loan so there is no housing bubble.

Banks run for profit, sometimes common sense gets in the way, the Yanks found that out the hard way hence the rest of the world now stress test them and check them very closely

OZ Banks (parent of NZ) performed really well during 2008-09 turmoil considering their counter parts in U.S. and Europe, that's good enough stress test. The cheap money that's currently available at reduced interest rate might be little bit tighter once the QE in effect in a year or two from now but overall lending market is still in its senses in AP region.

not so, they all had to raise additional capital from there shareholders to make sure they stayed within requirements. I know this as I was able to top up my holdings at very cheap shareprices

Shogun, the GFC example which many people try to use as proof of NZ resilience to a house price correction is illogical. NZ made it through the GFC due to riding China's success, as with Oz. On top of that we had the highest commodity prices for over 30 years and a Christchurch rebuild providing 17% of our GDP.

Do you think China will save our arse this time? Are commodity prices high? Is it likely there'll be another earthquake and city to rebuild?

When you say the new tax rules and 30% LVR will have no effect, on what evidence do you make this assertion?

...and don't forget mortgage rates in NZ fell from 8-9% to 5-6% Triple, which saved the housing market in AKL back then... very unlikely we will see such a drop again from present levels...

Stronger immigration, no other real alternative investment (less riskier) opportunity, concentrated growth around Auckland region, everyone wants to have their own roof especially Asians n Indians etc will continue to spur Auckland residential investment growth. There might be some reduction (2-4%) in capital growth but the property market will keep growing @ 6 - 8% until any of the above is curtailed. So any time is a good time to enter the residential market in Auckland.

Reduction in OZ banking share prices at that time were reaction to global crisis than local fundamentals! Capital raising is continuous cycle especially when companies wants to grow and/or to meet their long term business plan so we can't isolate capital raising to any one happening. If any of major OZ banks wants to issue couple of billion dollars 10 year corporate bonds say at 2-3%, it will be snapped up in few hours or if not in minutes by global investors based on current investment climate. Overall, what I'm trying to say is, residential lending is the safest lending for OZ banks where bad loans from this sector is very minimal so banks will continue to lend in this sector and 30% LVR is going to place them in even stronger position.

also apra are requiring more capital to be held as they are worried about sydney

from the pi site, do you think banks are checking or taking on face value

Actually investors were borrowing 95% by telling BNZ they were buying as their first home

If there is a correction coming, then perhaps it will come from Australia, first. "The federal budget could be a game-changer for the property market as cuts in retirement benefits, record high property prices, and record low interest rates increase pressure on more than one million homeowners to cash-up by downsizing."

I will be happy to see all the empty houses resold so either owners or tenants can live in them. maybe they need to also catch this data.

Third term governments usually can't hear a thing. The noise must have been very loud for this one to get through their earmuffs.
Michael Woodhouse would be wise to pick up his ear trumpet and address the obvious problems in immigration including the student visa rort.

HAHAHAHAHAHAHAHAHAHAAA!!!

"The Property Investors Federation has accused the Government of bowing to...hysteria."

My God, what balls they have! NZ's ridiculous residential property BUBBLE is the result of hysteria whipped up by the likes of the PIF and REINZ and all the other property "spruikers" out there.

In a relatively short period house prices have increased as much as tenfold while incomes have largely remained static compared to the CPI etc in the same time frame, but those house price increases are NOT due to anything sensible or tangible.

It's all hype and hysteria and hot air and panic from people who have been lead to believe they will miss out if they don't get in NOW NOW NOW!

HYSTERIA CAUSED THE BUBBLE, but the people encouraging the hysteria are claiming the CGT is only a result of hysteria. Actually I suppose in a way that's true -- without the ridiculous hysteria and fear and panic whipped up by the PIF etc there would be no need for this new tax plan.

"Mr Key told reporters today that because the current rules about "intention" still applied, someone .....would still be taxed whether the property was sold after two years and one day, or even after 10 years."

'Taxing property gains fairly' - shouldn't all gains be taxed fairly?

I'll repeat myself again. Remove capital/revenue distinctions and the "intent" rule and tax all gains. Is this not fair?

Many home occupiers intend to make a gain from their home whether they keep it for 2 or 20 years.

No its not fair meh. If I change my job to the other side of Auckland and need to therefore sell my house and buy another one closer to my place of work, I should be able to get like for like, under your rules i couldnt, eg sell my house for 1 million, buy a house the other side for 1 million. Under your rules I would sell for 1 million, less what I paid $350k = 650k @ .33% 214.5k taxation, leaving me only 785k (less real estate fees). So I probably wouldn't move, the tax wouldn't therefore be collected. So such laws would be a tax against both capital and labour mobility. Doesn't make for an efficient effective economy. Why would you want to do that?

In terms of housing, if my house value goes up 100k or down 100k, (the next house I move to would also go up or down accordingly) I dont really care, I am no richer or poorer, it's the same house. High house prices in AKL, if anything, add to the incentive to sell up and move to the regions.

So you made money but you won't move because you can only buy a $785K house instead of $1M and all because the income is taxed? Are you saying your decisions are based purely on the tax advantages? Will you be demanding lower priced houses then?

You won't sell therefore the tax won't be collected - it wasn't going to be collected under existing tax law.

Are existing income taxes a tax against capital and labour mobility? My suggestion only broadens the tax base. Ideally the tax rate itself can be reduced. Why don't we just remove all taxes then?

Are you saying we have an efficient and effective economy now?

Of course its not going to be collected under the existing law, just would under your hypothetical laws.

"So you made money...", I would argue I didn't make any money. That's my point. If I sold one 4 bedroom house for $1m and bought another 4 bedroom house for $1m on the other side of AKL how much income have I made? Zero. Zilch. Nothing. But everyone has an opinion. Mine is taxing housing inflation on my family home (as you suggest) as taxable income is a bad idea, because its not income (it hasn't made me better off), - you think its a good idea, fine. I don't think it will ever happen, and any government that even suggested it would be thrown out.

Existing income taxes aren't against capital and labour mobility, they are against income (which is why they are called 'income' taxes) and the tax is the same all over the country.

Will you be demanding lower priced houses then?

as above - if my house value goes up 100k or down 100k, (the next house I move to would also go up or down accordingly) I dont really care, I am no richer or poorer, it's the same house.

There is not only the intent, but, the actual practice

For the IRD, a very simple test is to require the vendor to produce at the time of sale copies of their electricity bills and water bills, invoiced in their own names, for service supply at the address of the property being sold, going back for 5 years of ownership or less if owned for less. Rent receipts. Applies to properties sold within 5 years of purchase

Such a test would pick up landlords who travel under the radar

Big Data. Data matching by the IRD with the utilities would obviate the need to do that

the IRD should treat every house the same, and all you have to do is prove you reside in it with proof, but do not tell people what level of proof until they sell. They could have a range and if not satisfied send you away to get the next level. if you live there will be easy enough as you will have numerous documentation and neighbours, bosses, workmates etc to vouch for you.
it cant be only documentation, as there are people paying power and sky bills to get their kids into certain schools and plenty of dodgy accountants and lawyers that wont blink for money

Olly Newland is in favour of this new regime, so it must be good.

http://www.ollynewland.co.nz/

Apparently he will be giving his views today on Prime TV and TV 3.
Will be interesting to watch.

Uncle Olly is in favour of this new regime .......

Yessssssssssss ...... hmmmmm .... don't be offended , but .....

....I now think we had better look more closely at the fine print before we sign off on it .....

just getting my kenworth out, want a lift? must be a big hole there somewhere

Seeing this policy sorta reminds me of coming into a room and seeing my grandfather lying still on the couch - I nestled up closer to see if he was in fact alive and was relieved to see that he was still breathing.

In terms of Labours reaction and I am torn. On one hand public pressure needs to be continuously applied to National to get them to do something - or anything. But on the other would be better not to have gotcha politics come into it which might provoke National from backing down into doing less just to avoid the I told you so's from labour. Gotcha politics have no place.

And I'm aware that this is going to contradict what I just said (I'm human too so sue me), but let's just elect Peter Thomson (CEO of Barefoot & Thomson) as Prime Minister - he would literally do more than John Key. I still can't get over that.

... I'm sure that as PM , the CEO of Barefoot and Tonsils would surprise us all ....

But , as all good Aucklanders know , be very careful what you vote for .... or you'll be deeper in the brown stuff than a dairy farmer on sluicing out day ....

I think Peter Thompson's comments were to do with a market which his company doesn't specialise in - i.e. over $1.5M (that's more Boulgaris, Bayleys, UP, etc.). So of course he was all in favour for 500K deposit for over $1.5M properties.

In addition, very few people pay $1.5M for their first home so its obvious they will be selling their previous home and already have good equity. Peter was being clever, acting all caring, yet he knew his comments would barely effect his companies market share.

I know I know

Tonsils huh? - perfect

Peter Thompson - The goto man - NZ Herald - 15 May 2015

The lobbyist - you want something done he's the man - that's how politics work

Barfoot & Thompson director Peter Thompson said
He lobbies politicians, the Reserve Bank and Real Estate Institute industry leaders

Then he also said
the move would force people to live in suburbs they could afford, "not where they want to be"

That's like Australian Treasurer Joe Hockey saying poor people won't be affected by an increase in petrol tax because poor people don't drive

Peter Thompson's exclusive article in the NZ Herald 15 May 2015
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1144...

I was once explaining the differences between land-value vs capital-value as the basis of the general rate. A person who lived on the beachfront - where land-values were extremely high - pointed out he'd rather retain land-value as the basis given that high rates would keep those who couldn't afford to live there out.

Something Peter might want to take up with the Auckland Council :-).

I have an extreme aversion to patronage, influence peddlers, influencers, urgers, shysters, power brokers, insiders

... I take it that you're not a Catholic , nor in an organized trade union , then ?

nope, never even been christened

Surely Thommo is straight from central casting.....?

How's that for clairvoyance

On 30 April 2015 I wrote
Really, Thompson, who if he knows his onions, knows exactly where his business is being done, who it's being done with, how much of his business is done with investors, how much with FHB's, how much with overseas buyers, the source of funds, how much is cash business, how much is financed (I could go on) but he knows, he knows exactly where his business is coming from

These urgings above would have you believe he knows none of this, and at the same time he is NOT advising his "friends"

Barfoot & Thompson and thus Peter Thompson has to be the pre-eminent Auckland based touchstone for John Key, Bill English, and if he so chooses, Graeme Wheeler and any other aparatchik you care to think of

Peter Thompson article 29 April 2015
http://www.interest.co.nz/opinion/75229/peter-thompson-why-government-ca...

my full comment
http://www.interest.co.nz/opinion/75229/peter-thompson-why-government-ca...

Bernard Hickey has to get himself listed on Peter Thompson's speed-dial

Another reason to buy in the secondary cities... holding for 2 years min places much greater importance on yields. 2 years is fairly long time to hold if massively cashflow neg.

try explaining that to the Auckland rental house investors most tip in at least the ones I know do. and when you talk to them about better yields in Hamilton or Tauranga and they can have positive cashflow they are not interested because aucklands capital gain is too juicy.

The tax change is just noise. More important is that everyone buying a property has to supply an IRD number. Might be a lot of job openings coming up for Mandarin and Cantonese speakers at the IRD shortly.

I wonder how family trusts will be treated? It would make sense for the IRD to record the IRD number of the settlor rather than the trust itself. Imagine for instance the oligarchs scooping up dozens of houses using multiple trusts to obfuscate their actions to the IRD.

Recently I applied for an IRD number for a trust. I had to provide the trustees details and the trustees IRD numbers.

Often the solicitor is the settler. I think you'll find the appointor is more interesting.

....dead right. The appoint or is the key, settlor and trustees are so often just names of convenience....do what the appointed says or be removed. More trusts per head in nz than any other country...due to the ability to rort the system - a favourite tool of the have's. If only the public knew.

I'm not a lawyer but perhaps it depends on the wording of the deed. My trust for instance I'm the settlor and as such have the power to appoint and remove trustees and/or discretionary beneficiaries.

I once asked an accountant whether my trust would become "non-complying foreign" if I was overseas, to which he replied yes if the settlor resides overseas. That's the only reason I thought the settlor was the shiznit.

Hopefully the IRD is considering such things.

I'm hoping that IRD's Big Data division will start to pick up people like that and separate those who have means to give their families a good start (good thing), or to do diligence (good thing) from those just trying to hide what they're doing for tax advantage (evasion).

Bernard Hickey has to get himself listed on Peter Thompson's speed-dial

IRD will issue him a speeding ticket , big enough to wipe the smile from his dial ....

... if you get into bed with a dog , you catch fleas .... be careful getting into bed with Mr Tin peach !!!

...if anything to radical was introduced the horses might be spooked just a bit too much. This is an opening shot in an attempt to let the balloon deflate slowly. I suspect if this does not have the desired affect, more shots will follow - the public outcry is now too loud to ignore.

This is the first step on the long road of bringing in a GCT, even the language has changed from no way would Nz;s want one to we have always had one we are tightening it up.

Are capital losses tax deductible within 2 years. As I would wager that from Oct 1 2015 Auckland will have declining prices for a significant period of time (2-5 years). Effectively can't tax the capital gains on properties bought before Oct 1 2015, but open self up to capital losses from those a day late and a dollar short.

Very sarcastic but very funny prediction though!

But a very good question, are capital losses tax deductible??

... yes they are ... but you don't get a refund payment ... instead , the IRD credit you with an " off-set " to use against any future capital gains you may make ...

Best hope you can make some , huh !

Interesting that National & Labour are both going in directions directly opposed to their core constituencies. Labour, the party of the unpropertied, who suffer from the dream tax settings provided to landlords, is moving to opposing a CGT. National, the party of landlords and property owners, is introducing one. A year ago, I would have laughed at you if you had suggested it.

Two questions:

1) With the announcement of the tax crackdown, will we now see a flood of new listings, particularly in the Auckland market, as flippers look to avoid October 1st?

2) In addition to the recent LVR rules for Auckland, will this latest Govt move see housing "demand" begin to drop off and thereby addressing the supply issues?

As I said last week what the RB announced was not the end. JK does not want to leave a legacy of failure. If what he announced today does not work he will go in harder. Better later than never. Why he did not intervene earlier puzzles me.

Buyers and SELLERS both have to register their details after 1 October.
Possibly there are quite a few sellers who wish to keep a low profile, particularly if a foreigner owner realises that IRD gets their number and also their home country taxation reference which can then be forwarded to the overseas authority.
Expect some action before October.

All IMHO.
Hope the rush for the exits does not become a torrent

so much for we don't need a foreign register, the part about collecting their tax id from their home country will make a few Asians wary about sending their money here.

That was my exact same thought in reaction to this, but as long as residential property remains in the Investor category for immigrants, there is still plenty of incentive for them to buy up property here, maybe even more so this sort of property as you would tend to hold it for more than a couple of years.

Isn't this just a better way to enforce existing rules, doesn't seem like much has changed really, looks like they are trying to appear to be doing something, while doing as little as possible.

LINZ and QV both have big-data from which they can extract exactly how many properties were acquired and disposed of inside 2 years, how much they were bought for, how much they were sold for, and total annual profits

They have the data that goes back at least 10 years if not more, and
They can granulate it into regions and cities and suburbs

And they can even produce data on how many were "bought and sold" within 1 year

Whether they will do that is another matter altogether

Don't know whether REINZ keeps that level of data

Que Chaston?

Expecting a fantastic price hike for houses in Auckland from now to Oct 1.

Are foreigners going to rush to buy before Oct 1st while there's still anonymity? Or as Basil Brush speculates rush for the exits to avoid publicity after Oct 1st?

Somehow I think the former. The top priority for Chinese is getting money out of China before their economy implodes, and the government devalues the Ywan.

Both wrong

Peter Cai, Chinese columnist for China Spectator did an interview last week discussing the effects and probable responses to the changes in the property regime in Australia, which are considered stronger than those changes announced today by John Key. They will have little to no effect on inbound Asian buyers

A link to it was posted here on interest.co.nz

His assessment is the inbound migrants are seeking long term assets in Australasia, and the new changes of 3% are mere pocket fluff in the bigger scheme of things

Expect the influx to continue. They are not speculating. They will not be selling out,

Expect prices to continue to hold up hard

I do believe that is the case and as I said on another thread here, the govt needs to remove residential property in the Investor category for prospective immigrants. They changed the act to include it in May 2011 and it is as easy as that to remove it.
That should be the next clarion call, but don't lets shut up about the rest

Doubt its gong to make much of a difference, 2 years is nothing in terms of time.

Most of what is being done now, should have been a long time ago, when all us dumb, no nothings were warning of where allowing foreigners carte blanche in our market would lead. Next stop, all the farmland.

Whether a nz farmer or a foreigner owns a farm makes absolutely no difference to me. Or you.

If "you" is a NZer who wants to farm but cant match the easy cash from off-shore then yes it does effect "you".

It makes a huge difference.
What interest does a foreign farmer have in NZ communities or regions? What do they care if the environment and water is nice or landscape good. A NZ farmer will spend their profit (if it happens) back into NZ towns, pay NZ taxes, care about the quality of their evironment (when there's enough payout to do so). A NZ farmer will vote in business to support what is good for NZ, and the NZ industry.

A foreign corporation only looks out for the corporations interests, and the shareholders interest (the latter being a legal requirement).

the foreign owner doesn't care about development of innovation for NZ, nor do they care about exploring novel solutions or ideas. Nor, as we see from the current payout, do they care about Co-op principles which see the milk pool split evenly, none receiving advantage over others, and the idea of helping other farmers grow and improve, including getting new farmers working up the system into their own farms.

Foreign ownership is about hiding money, ego, yield, vertical integration (ie securing the lowest cost product guaranteed). None of that is good for NZ. Not for farmers, not for towns, not for city folk.

Not for city folk because farmers turn sunlight, water, labour into exportable profits, while creating local business, and hopefully making enough to pay national rates and taxes. That's what puts money and business into most of the country, and creates the majority of (non-government) GDP in NZ.

A big difference, as I was just talking to someone related to a farm worker that worked on Queen St farmer Michael Faye's farm. Most NZ farmers have to rely directly on incomes generated by the farm (not hobbies), or their partners town wage. On Michael Faye's farm, if somethign breaks you just order a new one, or call in a contractor to make the problem go away. Because he doesn't have to rely on farm income..... and annoyingly enough, people like that are the ones setting the rules for the NZ industry. Making choices and decisions that affect all farmers, yet they themselves aren't exposed because of their enormous off farm income - so city person do you want Freedom of independent NZ farmers? Or more micro-serfs for the rich masters? My NZ culture relies on the First....because the 99% were so happy with the second.

Very well put, however a lot of people do not care to see past the ends of their noses and are only concerned at what concerns them immediately, they have little regard for the future of NZ and its people, shame. I think those of us that think otherwise are definitely growing in number.
An I would add, there was a time when foreigners could not come and buy land with little or no restriction, so when you went to purchase a farm, you were only looking at its value as it is, in NZ.
Corporate farming has reamed out rural communities, and for me that is almost enough to kick the foreigners to the curb

The corporate farming also has an added danger, twinned with rising labour cost the value of robotics and automation to replace waged labour is a very real danger. And unlike the machines of yerter-year the new machinery and computers can only be repaired by locked in certified technicians with expensive parts. Many of the modern cars are going the same way - the value is moving away from the steel and service, to the doodads that can be packed into them (and just how many of the doodads on your smartphone to you real get value out of?)

From what I have seen so far the changes proposed apply to housing - residential property. Could this signal a change in foreign investment towards business premises and/or the share market?. For the latter the NZ market has several large companies paying good dividend rates that would also pass the intention question quite easily. If foreign eyes start squinting at tne NZ market the mark up up seen in the 80's will seem like childs play. If the wish is to safely park the money - a sort of NZ Swiss Bank Account if you like - the NZ stock market could make a lot of sense at the moment.

unlikely, as the Asian share markets are preforming much better, second to buy here they need an IRD number, last I dont think it counts for points unless its a private company or controlling interest.
so very unlikely if its to park money

Asian (chinese) share markets are rather risky shall we say. They also are in China which is the point of not being in them for some of your $s for some chinese. There is also a higher return here if only as a deposit account. Having a NZ IRD number is how hard? I assume if you are a land owner you have to pay rates, bills etc and usually have an income off the asset.

If they could ring fence the tax take and invest it in affordable housing initiatives that could help ease some of the pressure on house prices. I still have an issue with the volatility of a tax based on an increase in value. If there is a decrease in value then no tax is collected. I prefer a stamp duty and land tax that can be tiered and linked to land use and an IRD number. No IRD number then double the stamp duty. Vacant residential land should incur a higher land tax to encourage it's use. Both would be collected regardless of the market conditions.

For all a yez who are a'pinnin' yer hopes on IRD's Big Data, lemme remind y'all that, IIRC, they run COBOL-based mainframes.....

So perhaps it might advance the New One (estimated cost - a few billion, more every time it gets media oxygen

Be careful wotcha wish for....

Yeah. I been thinking about that for some time.

Not so sure you are right

It's pretty hard keeping abreast of what's happening out there in the big-wide-world

I am reliably informed there have been some magic tools available for some time. Windows based drag-and-drop services that can integrate large disparate databases, with different structures, at the drag-of-a-mouse and hey-presto, all done, and then you can write a simple query to search for and extract whatever you seek

Tools like Ruby and SSIS (sequel server integration services) specifically designed for migration of existing data contained in databases

Then there is long-in-the-tooth IBM tool Dasastage which has been around awhile. Almost ancient.

Such tools are quite different to the basic IT operating systems infrastructure you are referring to

Quite feasible to integrate and query databases from LINZ, WINZ, HCNZ, local councils, IRD, utilities

Put that in your diary for a revisit in about a year or two or five

The existing stuff is in COBOL, and the IT people working on it have to be checked and verified and sign declarations that are binding on them for the rest of their lives.

The beauty of modern systems is they can black-box much of the older system and pick-up data that goes in and out of the envelope - much like the way NZ's IRD has made excellent progress in putting many of the common forms up on secure webpages for use (eg GST 101, IR3, IR3a,3f, IR10, IR 345 ...still waiting IR6 (Trusts) ) but that data goes in over the web, gets into their system fast, and processed quickly; do this it can be tee-d at the webpage/entry stage and a duplicate harvested for advanced analysis. this is even better than "One Size to Rule them All" because it encapsulates the analysis away from the financial records which reduces the likelihood of catastrophic errors. Just need to have solid interface (inter-process) protocols in place.

About time John Key Man up and sorted out the Auckland property market. Only two more things for JK to do now.
1. Only allow the international investors to invest in new builds. They should not be allow to purchase New Zealanders family homes in all the good school zones. This is what Australia do and it works very well. We need the investment channeled into new builds and development.

2. Only allow the internationals to purchase leasehold farmland similar the westcoast lease around the Taranaki area. We have a reputation to look after in our biggest backbone farming.

Come on John Key lets see you really man up and sort this two issues out. He has half my vote back sort these two things out he can have it all back with a pat on the back as well.

Great to see the passion on interest.co.nz well done all you Kiwi’s for standing up.

How did John Key get Beijing's permission for this? Or are the Chinese government-owned companies only really interested in our farms and commercial properties? Will there be retaliation?

Unlikely to have any direct effect as many have said. Supply, demand, material costs and immigration are the significant factors. It is significant however in signalling direction change for the future. NZ will fall in line with the rest of the world and end up with a full capital gains tax. It is just a matter of time now. It will now be far easier to make future changes. However they still need to meaningfully address the housing problem. Housing looks like it is going to blow up horribly in their face now and there appears to be more than a hint of panic. Their inaction to date has lead them to a point were now where there are very few if any good ways of resolving the problem without significant pain to some. The trick will be making sure that it falls on the right people.

Tax should be fair. The intention rule isn't fair. Honest speculators would pay CGT while dishonest speculators wouldn't and it seems honest investors could find themselves liable for CGT if IRD misjudge their intentions. Bright line rules are fair and leave no risk of surprises and no opportunity of rewards for dishonesty. I would like to see the intention rule completely replaced by an extension to the bright line rule - maybe a graded series of bright line positions between 2 and 5 years?

I cant see why there should be any time consideration. Income is income. Should I be exempt tax if my employer pays me 2 years later? What would be fair however, would be to deduct the inflation percentage of the capital gain. However if this was done the inflation portion of mortgage interest should not be tax deductible.

Income isn't income. Do you pay tax on the equipment you use at your employment? Do you even know the financial handling differences between capital purchases and expenses such as stock/material/labour?

The plan is to make it hard for the dishonest speculators to hide, without penalising those who aren't cheating