Ringfencing property losses on agenda again

Tax officials are taking another look at cracking down on the “ring fencing” of property losses.

Tuesday, January 29th 2008, 12:00AM

by The Landlord

The move comes at the start of a week likely to feature a number of policy moves to do with the housing market. At least one, if not both, of the opening speeches by Prime Minister Helen Clark and Opposition leader John Key are expected to focus on housing affordability issues.

The New Zealand Herald reported on the weekend the idea of “ring fencing” tax losses of property investors had been dropped last year but had recently been taken up again.

In fact the idea was never dropped, as landlords.co.nz reported last July.

And yesterday Finance Minister Michael Cullen’s office confirmed officials are still examining the issue. There is no time frame available on when any announcements might be made.

The Reserve Bank first floated the idea in early 2006 when concerns surfaced about the extent of investment in residential property in New Zealand.

The government has never formally declared a position on ring fencing: however officials are understood to be keen and comments from Finance Minister Michael Cullen over the past year suggest he is leaning in that direction.

Cullen attempted to get other political parties to sign up to looking at ring-fencing but the only unequivocally keen group was the Greens.

National finance spokesman Bill English has pooh-poohed the idea of tax being the main driver of New Zealand’s propensity for investing in residential property over other forms of investment, and has pointed to Reserve Bank research which shows countries which have a less favourable tax regime – such as Australia – have seen comparable property booms over recent years.

There were select committee inquiries on both housing affordability and the operation of monetary policy late last year –both which saw the issue of ring-fencing property investment losses from other income for tax purposes canvassed. These enquiries are not due to report until March.

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