Key’s silence on depreciation indicates it’s a focus

Prime Minister John Key today ruled out land tax, risk free rate of return (RFRM) and a capital gains tax on property.

KPMG chief executive Jan Dawson says the ruling out of land tax and RFRM is a triumph of pragmatism over theory.

"Although economists like property taxes for their efficiency, the real world impacts of these two measures make them difficult to implement in a politically sustainable way."

KPMG tax partner Paul Dunne says property investors will be looking for clarity around parameters and definitions.

"Until detailed announcements are made, property investments decisions will be shrouded in uncertainty," he says.

"We expect a lot of pressure will be applied by the property sector on the Government between now and the Budget in order to gain further clarity."

He says a range of options are available to Government to address the perceived "problem" with the total amount of tax paid by the property sector.

"Although ruling out land tax and risk free rate of return (RFRM), the government's silence indicates removing building depreciation remains on the table."

Dunne believes property investors need to ask - if depreciation is denied, then what level of tax rate cut would compensate?

Comments from our readers

On 10 February 2010 at 8:31 am hedonist said:

The removal of depreciation on buildings makes sense. It is a form of double dipping as the cost of maintaining the buildings is also deductable and of course the buildings may deteriorate but do seldom do they depreciate in value.

On 10 February 2010 at 7:22 pm paul said:

Hedonist I disagree. Whilst repairs and maintenance is deductible, improvements which cost a lot more are not deductible. There is no double dipping here. If depreciation and improvements were deductible there would be something to complain about.

On 12 February 2010 at 1:10 pm Tim said:

Paul, you are absolutely right. While maintenance and repair is certainly deductible, replacement of roof, re-piling, rewiring, replumbing etc is not. So removing depreciation is a bit punitive. To be honest I don't have any great philosophical argument with cap gains tax if it applied only to land value.

Key’s silence on depreciation indicates it’s a focus

KPMG believes the silence on depreciation today in the Prime Minister's speech on tax indicates that this remains very much a focus for the government in its tax reforms.

Tuesday, February 9th 2010, 6:00PM 3 Comments

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