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Property industry to pay for Budget

Bold changes set out in the Budget will primarily be funded through an effective tax increase for New Zealand property owners.

Thursday, May 20th 2010, 6:18PM

by The Landlord

Property Council chief executive Connal Townsend said while those reductions in the marginal tax rates are positive for the New Zealand economy, commercial property investors will help fund these changes by paying more tax.

"The Budget contains some positive results to improve New Zealand's national economic performance, but the cost of this unfairly falls on the property sector."

The most significant negative impact will be a change to disallow depreciation for a building's structure. Of equal concern are moves which could see rules changed to disallow depreciation on items such as building air conditioning systems which are currently depreciable as part of a building's fit-out.

Preliminary views from analysts believe the collective impact of tax changes on listed property could be a reduction in distributable earnings of between 4% and 7%.

Property Council National President Chris Gudgeon said the Council was very concerned about the Government's intention to review depreciation allowances for items of fit-out which clearly have an economic life significantly less than 50 years.

"This review has the potential to be a blatant tax grab which could create a significant disincentive to re-invest in commercial buildings, at the precise time when the Government needs to be incentivising refurbishment of existing buildings to reduce carbon emissions and maximise energy efficiency.

"Property Council looks forward to actively engaging with officials as part of that review. We have to ensure that the ability to claim depreciation for building systems for non-residential property is maintained."

Property Council has engaged with Inland Revenue and Treasury officials since February and provided them with compelling evidence that commercial buildings do depreciate. Removing the ability to claim depreciation effectively increases the tax charge on business.

Meanwhile Deloitte gives the Budget a D minus for its moves on depreciation and has described them as a backwards step, "especially for industrial buildings that reduce in value".

 "It is incomprehensible that the Government is moving to deny depreciation deductions on assets that reduce in value," tax partner Mike Shaw says.

Shaw, was a member of the Tax Working Group says the "minister deserves a D- for this measure."

"All this will achieve will be to reduce investment into this productive part of New Zealand's economy."  

The Tax Working Group did not obtain any information that the commercial and industrial sector was not paying its fair share in tax, hence the change is surprising, Shaw says.

In contrast, the removal of depreciation deductions for residential property investment is logical as the evidence presented to the Tax Working Group showed that these buildings do not depreciate. 

"The old policy was simply unfair, because property investors were able to claim losses against their personal income for assets that were actually improving in value. No other investment offered that tax advantage," Shaw says.

 

« Commercial property investors will foot the bill of proposed land taxRBNZ finally gets a response »

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 4.94 - - -
AIA - Go Home Loans 7.49 5.79 5.49 5.59
ANZ 7.39 6.39 6.19 6.19
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 5.79 5.59 5.59
ASB Bank 7.39 5.79 5.49 5.59
ASB Better Homes Top Up - - - 1.00
Avanti Finance 7.90 - - -
Basecorp Finance 8.35 - - -
BNZ - Classic - 5.99 5.69 5.69
Lender Flt 1yr 2yr 3yr
BNZ - Mortgage One 7.54 - - -
BNZ - Rapid Repay 7.54 - - -
BNZ - Std 7.44 5.79 5.59 5.69
BNZ - TotalMoney 7.54 - - -
CFML 321 Loans 6.20 - - -
CFML Home Loans 6.45 - - -
CFML Prime Loans 8.25 - - -
CFML Standard Loans 9.20 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 5.69 - -
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Owner Occ 6.95 5.79 5.59 5.69
Co-operative Bank - Standard 6.95 6.29 6.09 6.19
Credit Union Auckland 7.70 - - -
First Credit Union Special - 5.99 5.89 -
First Credit Union Standard 7.69 6.69 6.39 -
Heartland Bank - Online 6.99 5.49 5.39 5.45
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.60 6.65 6.40 -
ICBC 7.49 5.79 5.59 5.59
Kainga Ora ▼7.39 ▼5.79 ▼5.59 ▼5.69
Kainga Ora - First Home Buyer Special - - - -
Lender Flt 1yr 2yr 3yr
Kiwibank 7.25 ▼6.69 ▼6.49 6.49
Kiwibank - Offset 7.25 - - -
Kiwibank Special 7.25 ▼5.79 ▼5.59 5.69
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 7.94 5.75 5.99 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
SBS Bank 7.49 6.95 6.29 6.29
SBS Bank Special - ▼5.89 ▼5.49 5.69
SBS Construction lending for FHB - - - -
Lender Flt 1yr 2yr 3yr
SBS FirstHome Combo 4.94 ▼4.89 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.75 - - -
TSB Bank 8.19 6.49 6.39 6.39
TSB Special 7.39 5.69 5.59 5.59
Unity 7.64 5.79 5.55 -
Unity First Home Buyer special - 5.49 - -
Wairarapa Building Society 7.70 5.95 5.75 -
Westpac 7.39 6.39 6.09 6.19
Westpac Choices Everyday 7.49 - - -
Westpac Offset 7.39 - - -
Lender Flt 1yr 2yr 3yr
Westpac Special - 5.79 5.49 5.59
Median 7.49 5.79 5.69 5.69

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