In the Property Management Industry, we have had many new legislations changes that impact both Landlords, Tenants, and the Property Management industry.
In March 2021, the New Zealand government announced a new tax for Property Investors and often referred to, completely inaccurately, as Property Speculators.
The tax is simple, although there has been a lot of speculation that the final details at the end of the year will be very complicated. On existing housing, you can no longer claim interest as a deductible expense. Your profit is now rental income, less expenses, excluding interest you must pay on the investment loan. However, just to start to complicate things, this deductibility will still be allowed on new build property moving forward. The complication here is the first investor of a new build may get an advantage, but when they come to sell it, the next investor will not and will adjust their purchase price accordingly. That will have some impact on the newbuild investors willingness to pay a price in the first place, whereas the thinking, that is 5 or 10 or 20 years off may not translate to any actual discount. Let us see how this will all pan out.
That announcement sent thousands of Property Investors into bewilderment and expressions of anger were raised, not to mention economists and tax professionals who simplify could not understand the logic. A cashflow expense which you cannot deduct, now creating an accounting profit that the business owner must find additional cashflow funds to pay each year.
Losing the ability to offset income against interest you incur on a mortgage came as a massive surprise to all residential property investors. Many investors are trying to save for retirement and will provide security of tenure for families living in their investments.
This also sent the media into a frenzy on the implications, discussing commentary such as “Rent controls/Rent caps,” to “Government Tax Revenue Collection” to “ Tenant Rental Increases”
The inevitable thing that many landlords will do is increase the rents and increase them significantly. Landlords will try and aggressively push rents to levels that will be beyond sustainable for many renters and the Government will be forced to act. More money on rent means less disposable income for the economy. Also, the ballooning social housing waitlist which has increased by a whopping 548% since December 2015, which will increase even further and the people that the government promised to help the most will be hurt even more.
Change in our industry is inevitable, however we strongly recommend seeking strong independent advice about your own situation and look beyond the next 2-4 years ahead.
Many landlords we have spoken to plan to ‘stay the course’ for the long term and ride both the ups and downs.
More information can be found on the IRD website.
https://www.taxtechnical.ird.govt.nz/
At The Rent Shop our balanced approach is to focus on how this legislation apply to best serve our clients. If you have any questions about the rent calculation and our processes around this, or want to discuss the new legislation in more detail or have any concerns about your rental property and require help in managing your rental, please contact Sandy Dodson Our Business Development Manager on 09 555 9100
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