FormulaNova said..
So, its a capital gains tax that only applies if you sell within ten years? Yes?

Can you deduct the cost of a loan to buy or create a business against your income from other sources in NZ?

The point of introducing the question about taxes on profit was in response to you saying that it should be treated the same 'as a business'. If you want interest to be deductible, then you would also expect to be taxed on the profit wouldn't you? Before these rules, it wasn't taxed at all, yet you could still claim the interest costs.

That old comment springs to mind of 'socialising the losses and privatising the profit'.

What is the tax taxing?
And it was up to five years a couple of years back... I wonder how many years it'll be in a few years time.

Don't know.
What I do know is that you work out the deductibles on your rental income THEN combine that with other income to determine your total taxable income. Pretty hard to avoid paying the highest tax rate...
With a business loan, where you have higher deductibles, I'm guessing you'll have less to add to other income when it comes time to work out your tax. Does that answer the question?

As far as deductibles ON LOANS, it should be treated the same -- it IS income from a business after all.
You are taxed on "profit", why wouldn't you be? Rental income is income.

Huh? How?

Kamikuza said..

FormulaNova said..
Let's agree. Investing and Speculation are essentially the same in this context.
?

No they're not, so I won't agree.
..

Okay, so what is the difference between speculation and investing in the property market? The NZ or Aus ones or any other ones, take your pick.

Just as food for thought, this as from the ATO website, on negative gearing:

In 2012-13:

Over 1.9 million people earned rental income
Around 1.3 million of these reported a net rental loss
Nearly 70 per cent of people with negatively geared property had a taxable income of less than $80,000 per year

Are these people investing or speculating? My guess is that they are buying these properties knowing that they get a loss, and use it to reduce their taxable income. The reason to do that is the expectation of a decent capital gain at the end of it. Or are they just bad at investing and not realising that they are buying poor assets that provide negative returns?

Kamikuza said..

FormulaNova said..
Okay, so what is the difference between speculation and investing in the property market? The NZ or Aus ones or any other ones, take your pick.

Just as food for thought, this as from the ATO website, on negative gearing:

In 2012-13:

Over 1.9 million people earned rental income
Around 1.3 million of these reported a net rental loss
Nearly 70 per cent of people with negatively geared property had a taxable income of less than $80,000 per year

Are these people investing or speculating? My guess is that they are buying these properties knowing that they get a loss, and use it to reduce their taxable income. The reason to do that is the expectation of a decent capital gain at the end of it. Or are they just bad at investing and not realising that they are buying poor assets that provide negative returns?

Lordy, why do I have to explain things you can google? Or that I've explained before at least twice?
Speculating is about trying to make a quick buck ie. flippers.
Investment is about moderate growth over the long term, using the long time base to maximize profits and minimize risk.

Clearly that's a strategy for a longer term than buying and flipping a house, or hoping for an uptick in the price and selling quickly. You wouldn't do all that if you're planning on using the tax code to your advantage over the long term... so which do you think it is?

Why did I ask for you to define speculation versus investment? Because I couldn't see the difference and when I did look up the definitions before asking the question, they were essentially the same. Hence why I asked you for your understanding of the difference.

From your response, it seems time is the difference. It seems the NZ government agrees and have created that ten year timeframe so that investors can get their capital gain tax free after that period and the speculators are going to have to pay tax.

As an example of the property investors I have worked with over the years, there was one who stood out. He has twelve investment properties around the early 2000s. He explained to me that he had an agreement (I forget the term they use) with the ATO where he would pay a reduced rate of tax each pay period because of the expected tax losses at the end of the year. I don't know whether you would define him as a speculator or an investor but he clearly used the tax benefits to get the cash flow to finance so many properties, leveraging each one from an increase in value of the ones before it.

Speculating on such a short time frame doesn't seem to happen too much in Aus from what I can see. I don't know about NZ. Here the costs with stamp duty and other costs mean that it would have to be a huge gain. Plus you will pay tax on the 100% of the gain if you sell within the year. 50% after that. To me, that period is too short, and I think it is one of the things that made property investment take off here.

When people see such gains in property from renovation shows, and stories from people about the windfall gains, everyone gets in on the action, except those that are starting out and have to compete with cashed up investors. It's doable to an extent but not easy for everyone.

I would welcome it if the government here changed deductions and capital gains tax to favor new-builds, but the 1.3million investors would hunt me down.

Kamikuza said..
There's plenty of property out there; people need to be realistic about what they're going to get as a first home... "OMG I couldn't afford the house I wanted cos it sold for $1million the property market is all messed up the government must fix it". Ugh.
The whole point of those shows is that they're showing best case scenario and NOT showing the amount of work involved doing it yourself -- the two shows I'm thinking off (one a flipper, one a do-it-up) they have massive teams behind the camera doing all the hard work. Usually Mexicans and you wouldn't believe how cheap materials are in the US.

No they wouldn't. They'd invest in the new builds

Maybe things are very different in NZ compared to Aus with the availability of 'realistic' homes. I bought in 2001 and found an endless list of houses to look at, all within my modest price range. That was just within the areas that I decided I wanted to live in, not just the rest of Sydney.

Now, if you can find them, 'starter houses' are three times the cost. Probably in worse condition and not as good locations. 20 years is a long time, but I feel sorry for people starting out that have to stump up $1.2M to get just an average house.

I can understand people wanting a finished house if they are already going to be paying a huge amount, so I am a bit in both camps. Some people want everything, so let them pay for it. Others will work to a budget and get a modest house.

But its a moot point in NZ. These rules are in, and we will see the effect. It could be an interesting case study to compare against Aus in the same timeframe.

FormulaNova said..

515 said..
Yes I'm in Auckland.
Now landlords can't offset interest costs ( there are some exceptions) against rental income. Our tax year ends 31 March and we file returns by 7th July.

House prices are dropping but still unaffordable for first home buyers.
We have too many people on benefits not contributing and there will be a drain to Oz as better pay and slightly lower cost of living.

Cool. Thanks.

I was watching some program and they mentioned this so I wanted to see how it was working in practice. If it was working at all I guess, but it sounds like it is.

I can imagine that it will dramatically reduce the number of people that can afford to buy a house and speculate on it, when its costing you a lot more to hold it. I know for me when I held an investment property here in Aus that the first 10 years or so were losing money, so without being able to claim the interest as a deduction, its challenging, and all new investors are in the same boat.

Does this stop interest being claimed against the costs of the property itself, or against the person's personal income? Your comment suggests not even against the rent? That's significant.

I wonder if anyone here would have the balls to try the same policy? I doubt it. They seem to pay lip-service to housing affordability and happily own multiple investment properties themselves.

I can't imagine that prices there can do anything other than going down. It may take a while for things to shift, but with interest rates increasing and the interest not being a deduction, who could afford it? It also puts owner occupiers on a level playing field with investors which is good to see.

the Political opposition pledges to undo all the latest changes which have reined in house prices , he also happens to own many rental properties as do polies here in Aust .

Paradox said..
over regulation

Impossible the politicians are far superior human beings to you in every possible way and know better how to live your life and spend your money than you do shut up toe the line and pay all the tax you bigot

Sarcasm aside (only a small amount though) you can easily lay the majority of the blame at the foot of over-regulation.

I found that page that presents the data from NZ historical median house prices and inflation...
www.interest.co.nz/property/87961/adjusting-inflation-gains-house-prices-past-four-years-are-actually-nothing-special

Further reading can be found in a 2020 paper from Stats NZ called "Housing in Aoteroa: 2020"...

FormulaNova said..

Kamikuza said..
I found that page that presents the data from NZ historical median house prices and inflation...
www.interest.co.nz/property/87961/adjusting-inflation-gains-house-prices-past-four-years-are-actually-nothing-special
...

This link is for prices up until 2016. Have things changed since then significantly? I am guessing that they have increased but have no way of telling.

Even if you forget about the last 6 years, this data is for the entirety of NZ, not just Auckland.

It also removes inflation and still has a more than 8% increase in 2016 AFTER inflation. Is that a good thing for the community? For homeowners its either neutral or positive.

What makes you think the trends have changed so markedly since?
The 2020 paper has more recent data, but there has been whinging about this for at least ten years -- if not since the invention of class Marxism. If Stats NZ is releasing data, you'll probably find newer studies if you search for it.

Yes. Auckland is worse cos it's full of dickheads, snobs, and immigrants who won't go any further south and somehow think it's a great place to live. Who cares about Auckland? You're not obliged to live there.
There's also regional data around too, and weirdly they're not as expensive as Auckland -- where there is maximum pressure from supply and demand

Does it matter? All this noise in the press, government regulation to "fix" the market, and the prol's wailing and gnashing is about "first-home buyers" being forced out by "evil landlord investing speculators". That's clearly not the case, and if you want to get onto the housing ladder, lower your expectations to something you can actually afford -- like everyone else who succeeds in buying their first house Maybe a median-priced house just isn't in your budget, in the real world...