We have had the hand wringing

The IRD has had its hit squads combing the supposed ‘high growth’ areas of Queenstown and Wanaka, and others no doubt – good on them. We have heard all the good reasons why we shouldn’t have a capital gains tax on residential property investment. 

How can it be somehow a social good to buy some run down dump, give it a lick of paint, a kitset garden and then flog it off to some unsuspecting punter and pocket the margin tax-free. Or worse, have every white-shoe merchant flogging investment nirvana via the wonderful tool of highly leveraged and maximum depreciation enhanced residential property packages. We even have the gullible and naïve, the great unwashed joining membership associations, paying exorbitant fees at times, to learn the dark and wonderful secrets of this national DIY past time.

On the other hand we have the governor of the Reserve Bank exhorting the benefits of equity investing over residential housing. Pleading the case that equity investment into our nation of small to medium businesses will somehow strengthen our asset base and then deny the floods of foreign capital a place to call home – yeah right! Debt or equity, with interest rates that NZ has on offer (among the highest in the world) and our tissue thin barriers to casual overseas investment in NZ – not likely.

What has got the tongue of our policy makers on this matter. The IRD already have the rules on how income is taxed and just what does constitute income. But no, we are told it is political suicide to even contemplate enforcing them generally let alone taking a pragmatic view of the wider investment landscape and saying yes - if you invest and you gain, you sell, you pay tax – call it capital gains tax or not..

Forget the namby-pamby about the ‘intention’ interpretation. The, ‘I bought for the rental and look it was just not a go for me, so I sold it for a $50,000 profit (not taxed of course) but the ‘intention’ was never to make a gain’ – is just rubbish.

Before all the residential property folk around the country suffer apoplexy let me state that I am not unfavourably disposed to investment via residential property. Just don’t try to convince me that the real long run returns are anything other than an inflation adjusted 6-8% per annum, inclusive of rental, but gross of tax and you should be exempt from taxation on selling, other than on our own homes.

Let’s hear somebody from Wellington admit there is a serious issue of tax evasion and then do something about it. If I blithely suggested I work because I just happen to like it and it was a real surprise that I actually made a profit it does not absolve me from the responsibility of paying tax at the thirty nine cent level. So why should a ‘grey market’ of evasion exist in the residential investment arena.

Original Article published November 2006