OnPoint by Keith Ng

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OnPoint: Property Investment Federation: Just STFU

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  • nic.wise,

    I'm not 100% sure you are right on the claw back. In theory, thats how it works, however it's (usually) fairly easy to not have it clawed back, if you buy to hold, not buy to flip.

    If IRD can prove (or rather, if we can't disprove) we started with the intention to do it as a flip - buy low, make some minor changes, sell higher, pocket the profit, move to the next one - then the profit is taxable, as we are property trading, not investing. But otherwise: not so much.

    If we hadn't decided to move to the UK, we'd most likely still own the properties we had, which makes it easy to indicate buy-and-hold.

    Now, take out that 3k in depreciation, or 1K in "tax refund income".

    I now dont realise any profit until I sell the property (because the rent covers the mortgage and some expenses, but seldom actually results in a _profit_ before tax), and if I buy to hold (ie, for cashflow/an income), then I'm going to either get out of the market (cue rent rises 'cos there is less rentable properties) or I'm going to put the rent up (same result) so I DO get a profit for the time I put in.

    Put it this way: would you get up at 3am to fix (or organise to fix) a hot water heater for $5 a week? or for -$5/week? Thought not.

    So maybe they are a bit FOS. But not totally.

    also: if my company buys a laptop, I can depreciate it over 3 years to zero (I'm a software developer). Same if I buy a car or a desk.

    But you are saying if my other company buys a house (it's stock/plant/equipment), which has an oven in it, a water heater, light fittings etc, I can't claim any depreciation over the life of those items? it's owned by the business, it makes some money for the business (try renting without those), and if it breaks or gets too old, I _have_to_ replace it. But I can't depreciate it. WTF? Double standard much?

    Auckland • Since Nov 2006 • 87 posts Report Reply

  • Craig Ranapia,

    Yesterday, 11 March 2010, TVNZ reported:

    Ah, yes... The story where the photogenically pathetic Kiwi Battler from Struggle Street ended up saying that "going out less often" would be an option.

    Sorry for being a prick, but when I know people who got laid off the week before Christmas, it's hard to feel the tragedy in spending a few more Friday nights at home.

    Of course, this means Trevor Mallard's own back-of-a-napkin adventures were even more full of shit.

    Also find myself wondering how defending the rentier welfare state is "for the many, not the few" -- unless Mallard is after the Labour nomination for Epsom.

    North Shore, Auckland • Since Nov 2006 • 12370 posts Report Reply

  • Glenn Pearce,

    I'm not 100% sure you are right on the claw back. In theory, thats how it works, however it's (usually) fairly easy to not have it clawed back, if you buy to hold, not buy to flip.

    I thought the flip/hold rule was only applied to the capital gain. The depreciation clawback is supposed to be irrespective of the flip/hold rule ?

    But as Keith points out it's fairly straightforward to get a valuation from a friendly valuer at time of sale indicating that the increase in value has all come from the land not the building, and in most cases that wouldn't actually be too far from the truth. esp. in AKL

    I'd like to see some figures on how much depn is actually clawed back, I bet it's a small % of what is claimed as deductible.

    Auckland • Since Feb 2007 • 504 posts Report Reply

  • giovanni tiso,

    Also find myself wondering how defending the rentier welfare state is "for the many, not the few" -- unless Mallard is after the Labour nomination for Epsom.

    Word - the most depressing part of this is seeing Labour side with the property investors. Way to go, Trev.

    Wellington • Since Jun 2007 • 7473 posts Report Reply

  • Robbie Siataga,

    Sorry, my financial literacy and numeracy skills aren't quite up to scratch and property investing leaves me for dead but, in saying they are full of shit, are you saying they (landlords) will use dodgy reasoning to hike rents if any cost is passed on to them and that Trev is in support of this ?

    I saw Key say something to the effect of, "rent rises will be marginal if at all, but we'll just have to monitor things as they develop and adjust accordingly"... which to me is a classic bit of politico shit talk to prime us for a hike but that it doesn't affect him, his mates and their trust properties, so he's pretty relaxed about it, just like his "the working poor shouldn't be any worse off" line.

    In straight talk then, can we expect a rent rise to go along with teh GST if this tax package etc go through as is, in the upcoming budget ?

    Since Feb 2010 • 259 posts Report Reply

  • Grace Dalley,

    But you are saying if my other company buys a house (it's stock/plant/equipment), which has an oven in it, a water heater, light fittings etc, I can't claim any depreciation over the life of those items? it's owned by the business, it makes some money for the business (try renting without those), and if it breaks or gets too old, I _have_to_ replace it. But I can't depreciate it.

    Maintenance costs on rental property are directly tax-deductible.

    Christchurch • Since Nov 2008 • 138 posts Report Reply

  • Kumara Republic,

    I liken the PIF to the French Common Agricultural Policy lobby - everyone knows the status quo can't go on much longer, but no-one's got the cojones to challenge them when they go DEFCON 1.

    The southernmost capital … • Since Nov 2006 • 5446 posts Report Reply

  • slarty,

    This isn't a bad starting point for the detail of the rules.

    Since Nov 2006 • 290 posts Report Reply

  • Craig Ranapia,

    In straight talk then, can we expect a rent rise to go along with teh GST if this tax package etc go through as is, in the upcoming budget ?

    Robbie: Well, the PIF can try it on, but I'd respectfully suggest that pricing yourself out of the market sounds an awful lot like cutting off your knob to spite your ex.

    I liken the PIF to the French Common Agricultural Policy lobby - everyone knows the status quo can't go on much longer, but no-one's got the cojones to challenge them when they go DEFCON 1.

    Don't know about that, Red -- Don't think Bill English is the man I'd want to be playing chicken with right now. And, dare I say it, after the budget I suspect the PIF is going to just have to get in line and wait to bitch English.

    North Shore, Auckland • Since Nov 2006 • 12370 posts Report Reply

  • Tom Semmens,

    People have choices. If landlords choose to hike their rents, people can choose to live with their parents, move in with flatmates, leave the country, or buy a house.

    Wow. Just wow. I am glad the choice is so clear.

    I sure all those people in overcrowded accomodation in South Auckland will also choose life. Choose a job. Choose a career. Choose a family. Choose a fucking big television, Choose washing machines, cars, compact disc players, and electrical tin openers. Choose good health, low cholesterol and dental insurance. Choose fixed- interest mortgage repayments. Choose a starter home. Choose your friends. Choose leisure wear and matching luggage. Choose a three piece suite on hire purchase in a range of fucking fabrics. Choose DIY and wondering who you are on a Sunday morning.

    Or they could choose to tell you to take your out of touch middle class bullshit and just fuck off.

    Sevilla, Espana • Since Nov 2006 • 2217 posts Report Reply

  • Robbie Siataga,

    thanx Craig...there was a related continuation to rent increases on some telly news last night about Sth Aucklanders moving into garages and increases in foodbank handouts to compensate for tithing to churches.

    Maybe we're being primed for churches being next on the taxable hit list ?

    On a side note, I'd hate to be in bash the bishop brians shoes no matter how flash they are.

    Since Feb 2010 • 259 posts Report Reply

  • Robbie Siataga,

    Grrrrrrrrrrrreeeeowwwwfsssssst ! says scarface claw, the tuffest Tom in town.

    I couldn't be arsed cos it was too easy and predictable from me to bust a nut on him/her . Nice one though Mr Semmens :)

    Since Feb 2010 • 259 posts Report Reply

  • Craig Ranapia,

    Or they could choose to tell you to take your out of touch middle class bullshit and just fuck off.

    Well, dear... I suspect "all those people in overcrowded accommodation in South Auckland" are really feeling sympathy pains for that tragically deprived woman on the news last night. OMFG, she might just have to "go out" less often. Well pardon my out of touch "middle-class" self, if my sympathies are a little more engaged by those who have more pressing issues than how the chi chi watering holes of Ponsonby Road and the Viaduct Basin are going to get along without you.

    Maybe we're being primed for churches being next on the taxable hit list ?

    One can only hope...

    North Shore, Auckland • Since Nov 2006 • 12370 posts Report Reply

  • John Fouhy,

    Tom, if landlords have a captive market, then why wouldn't they raise rents _now_?

    Wellington • Since Nov 2006 • 87 posts Report Reply

  • Robbie Siataga,

    yeah i saw that too Craig and my first thought was, poor wee darlings need to fuck off overseas. Then my thoughts turned to the journo, who was probably a mate, that bribed em with a free dinner in exchange for a mad quotable... Like sheeeit ! dont you know any real poor hard done by people you can roll up to at a moments notice for a meaningless soundbite ya lazy prick ?

    Since Feb 2010 • 259 posts Report Reply

  • Rich of Observationz,

    The flip/hold rule is a rort.

    If I buy a property and rent it out, I'll be having to put a substantial amount of money in to cover the mortgage, or forgo interest on that money, which still works out as a loss.

    The only conceivable reason for doing that is to make a capital gain one day, so the property is *always* being bought for the capital gain. Even if I plan to live in it eventually, I'm still making money (against banking the cash and buying a house when I need one) so it's still a capital gain.

    In our tax system, if I work my ass off and earn $100k, I pay around $35k of that in tax. If I sit on a house and make $100k, I pay no tax.

    Why is that fair? Because most MPs own a rental property?

    Back in Wellington • Since Nov 2006 • 5550 posts Report Reply

  • Matthew Poole,

    This article infuriated me. Illustrates perfectly the entitlement mindset of some landlords, and also fucked me off because that's some serious coin that could've been put into something productive (as in produces goods or services for resale, Keir, before we get into that argument again) instead of locked away for the benefit of a sole person's retirement. I bet she doesn't have a plumber, sparky or chippie retained just working on her houses, either, so I don't buy the flow-on economic benefit that supposedly attaches to keeping the houses maintained, either.

    Auckland • Since Mar 2007 • 4097 posts Report Reply

  • Keith Ng,

    Or they could choose to tell you to take your out of touch middle class bullshit and just fuck off.

    Christ Tom, did you not read the sentence immediately after that?

    You just need a small group who is flexible and responsive to price. If they vote with their wallets and push down prices, those who aren't flexible will get the benefits too.

    Nor is accommodation flexibility necessarily a middle class thing. Overcrowding occurs precisely because people are flexible, share rooms etc.

    Auckland • Since Nov 2006 • 543 posts Report Reply

  • Danielle,

    I think overcrowding mainly occurs because people are living in damp converted garages waiting for Housing New Zealand properties they can afford to pay the rent on...

    Charo World. Cuchi-cuchi!… • Since Nov 2006 • 3828 posts Report Reply

  • Keith Ng,

    Nic:

    Yeah, what Glenn said. Flip/hold relates to whether profit from sale of property is taxable or not. Whether you're a landlord (your main business is holding your property so you can rent it out) or a flipper doesn't affect depreciation.

    And the rent market isn't a static market. (I *HATE* this argument from the landlords.) If landlords sell up and get out of the rental market, they must be selling the house to *someone*. Either it's someone who's currently renting, or it's someone currently a owner-occupier, in which case *they* have to sell their house to someone, who could be currently renting, etc.

    Unless landlords set their properties on fire (or, I suppose, repurpose the house into something other than a residential property), they are not decreasing the housing stock.

    Also, yes - it's a double standard and it makes no sense. But the problem is that we don't have a capital gains tax, so people can treat all their gains as capital gains and load up on depreciation at the same time, so they double dip. It would be much more logical to just have a CGT. But hey, tell that to John Key.

    Auckland • Since Nov 2006 • 543 posts Report Reply

  • Keith Ng,

    I'd like to see some figures on how much depn is actually clawed back, I bet it's a small % of what is claimed as deductible.

    Writing the OIA now...

    Auckland • Since Nov 2006 • 543 posts Report Reply

  • Matthew Poole,

    Another thing about the whole "rents will have to go up in order for landlords to make money" concern is that it means the country's been living on an artificially-reduced rent value. Which part of the economy has been subsidising the rent? It's not like the money comes from nowhere, it has to be taken from one area in order to prop up another.

    Auckland • Since Mar 2007 • 4097 posts Report Reply

  • Keith Ng,

    ...are you saying they (landlords) will use dodgy reasoning to hike rents if any cost is passed on to them and that Trev is in support of this ?

    I'm saying that:

    a) They'll pretend the cost is more than it actually is.
    b) There's a limit to what they can pass on to renters. The rest they'll have to cough up themselves.
    c) Trevor was doodling some crazy shit on the back of a napkin.

    So, yeah, it'll probably make rents go up. But it might make property prices come down. It'll do a whole bunch of stuff, and we don't know who will get hit more. But it's not by as much as the Property Investors Federation says, and they've been consistently full of shit for quite a while now.

    Auckland • Since Nov 2006 • 543 posts Report Reply

  • nic.wise,

    @Glenn - sorry, I checked with the finance dept, and yes, you are right - we did get the claw back of depreciation, I just never saw it....

    @Grace: yup,maintenance of my laptop is tax deductible, too, but after a while, it's not suitable for the job - hence depreciation.

    Anyway, sorry for the confusion

    Auckland • Since Nov 2006 • 87 posts Report Reply

  • Kumara Republic,

    Matt P:

    This article infuriated me. Illustrates perfectly the entitlement mindset of some landlords, and also fucked me off because that's some serious coin that could've been put into something productive (as in produces goods or services for resale, Keir, before we get into that argument again) instead of locked away for the benefit of a sole person's retirement.

    Again, that sense of entitlement justifies my comparison with the Common Agricultural Policy. And not a single mention of paying any tax either.

    The southernmost capital … • Since Nov 2006 • 5446 posts Report Reply

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