Speaker by Various Artists

When we increase the responsibilities of landlords this will become even more important. For example, we will require them to insulate their houses, and install and maintain long-life fire alarms. Houses lacking these also kill and injure people.

We've realised the connection between housing and people's health and wellbeing, and we are increasingly a nation of renters. I think we need a national register of rental properties and owners, and this is an excellent way to begin the conversation.

As a result there’s no way of knowing which people are landlords.

This avenue might be trumped by privacy or information sharing issues, but doesn’t IRD ask a very specific question on the standard IR3 – q22 I think, unless it’s changed – about whether you received rents? That would identify all landlords who are directly letting out properties, would it not? (Unless they’re letting them out for free.)

Even so, I guess this would only identify people after their first tax year, and on the assumption that they’re correctly lodging tax returns, so it would very possibly miss some of the most critical people who are still figuring out what they’re meant to do.

One problem with the tax situation is that for many people the tax department is saying on the one hand "you have an income-producing asset, pay tax" but on the other "your asset does not qualify as an investment so no costs are deductable".

The is most blatant in the case of a share house where not all residents are on the lease. In theory rent paid by not-on-the-lease tenants to the leaseholder is taxable income, but the rent paid by the leaseholder is not a deductable cost. Which results in everybody I know saying "pull the other one" and refusing to pay the tax.

So no, I am not a landlord, and I wouldn't be paying tax on any rent paid if I was.

I don't see the equivalence here. If you're a sole leaseholder in a shared house, you're not "receiving rents" for the asset you own. You're merely the channel for money that actually does end up in rents to the property owner.

If anyone who actually is a property owner uses that as a justification for avoiding tax on their rented property, I hope IRD jumps all over them when they get audited.

As for the original suggestion, I totally agree there should be a compulsory registration scheme before you can rent out a property. Especially, as George observes, there are likely to be areas where compliancy to certain standards are enforced.

Of course, there will be much wailing and bitching from those who will insist naughty landlords will avoid registration, that the "good guys" will be penalised, and that there will be extra costs in creating such a scheme. Frankly, I think the cost of not doing it, and the ad hocery of what we do now, is much higher.

In theory rent paid by not-on-the-lease tenants to the leaseholder is taxable income, but the rent paid by the leaseholder is not a deductable cost.

Interesting and I’d never thought of it like that. If someone went to the effort of documenting a share situation for tax purposes, I’d have thought the leaseholder would be considered a sole trader who’s offering accommodation to others, and so could categorise the cash channeled through them as a business expense equivalent to the income received, on the grounds that they’re not getting the personal benefit of all that space that others are paying for, or something like that. I’ll take your word for it that this isn’t possible, though. Even if it worked out though, I guess it could become an insurance trap if insurance companies argued the leaseholder’s business changed the insurance contract.

But still, if you ignore those living in flats and channeling rents to a landlord, could IRD’s question about rents received potentially be used to identify many landlords?

I’ll take your word for it that this isn’t possible

I've asked an accountant at a social event and their (unofficial) advice was not to discuss it with the tax department. In Australia if you own the house then broadly the costs are deductable and the NZ situation seems simpler if you're supplying food etc, but for share housing I can't find anything useful.

could IRD’s question about rents received potentially be used to identify many landlords?

Oh, absolutely. And by rights it should. I'm firmly on the side of making landlords operate responsibly for both reasons, as it happens. I've been renting and in share houses for 25-odd years now and I'm a bit over crappy landlords renting out crappy houses. Plus if this did make residential "investment" less attractive I'd be more able to buy a house to live in.

But I've also seen people I know get into difficult situations because the tax arrangements are not as clear as we might hope. There's also issues around the time taken to comply with any requirements not being free. It sounds all well and good to get people to "just fill out a tax form", but when that also means traking every expense and producing itemised reports backed with receipts, you can easily add a hundred hours a year to the cost of owning a rental property. And by "rental property" I mean "the home you live in", because the complex cases are the share houses. When it's a rental you don't live in it's usually more obvious what the costs are and how/if they're split.

One friend of mine has a three bedroom house and now lives by herself because the cost and hassle of dealing with the tax department, council and tenancy people was just too much. Which is ugly both financially and environmentally, but between stuff like the tax department saying "prove that the food kitty is not taxable income" (WTF?) and then auditing her three years out of four, and the council saying "tenant car parking permits require a separate application and extra fees" then wanting her to pay for their investigation into whether she was running an illegal/unregistered boarding house (no, she had two tenants, not five) she just said "screw it, I already work 60 hours a week", booted the flatmates out, and bought a cat.

The other people I know who have flatmates to help pay the mortgage just keep quiet, don't charge a bond (so they don't have to lodge it), and don't pay tax. The net result for the tax office is the same, but there's a lot less paperwork.

Of course, there will be much wailing and bitching from those who will insist naughty landlords will avoid registration, that the "good guys" will be penalised,

The rental bond lodgement law would be a good guide to that, I think. The penalty for not lodging is high enough that I don't know of any cases where it hasn't been done. I've read about cases in the media where scumlords have failed to lodge as well as a heap of other dodgy things, but once you're into organised criminality I think "not paying tax" is pretty much guaranteed to be on the list regardless.

I suspect that even just an information-sharing deal around bond lodgement would solve 99% of the problem.

One problem with the tax situation is that for many people the tax department is saying on the one hand "you have an income-producing asset, pay tax" but on the other "your asset does not qualify as an investment so no costs are deductable"

Where do you get the idea that because an asset is not an investment that the costs are not deductible?

The basic premise of taxation in NZ is that if you have income it is taxed, and any costs incurred in the production of that taxable income is deductible. Exceptions exist, most notably - there are no deductions for salary and wage earners, but essentially if you have spent the money, and it is related to the income, you can deduct it from your taxable income.

And by “rental property” I mean “the home you live in”, because the complex cases are the share houses.

It doesn't have to be as complicated as you describe: The IRD has guidelines which are easily accessible by googling something like "income from boarders" and you get to this site:
http://www.ird.govt.nz/income-tax-individual/different-income-taxed/rental-income/boarders/incometax-boarders-flyer.html
So that reduces your compliance issues somewhat. Of course, you can go down the route of figuring out exactly what your costs were and claiming those. But then if you do that you open yourself up for the IRD's questions.

I don't think the flat share and boarding arrangements are the issue here.

In the case of the Ruakaka landlord, the courts found that the landlord did not take all the practicable steps to ensure the tenant's safety. So, he didn't meet the current standards, why would he then go further under a new regime? While you can have a whole lot of rules, regulations and standards for landlords to comply with, that doesn't mean they will comply with them.

So, he didn’t meet the current standards, why would he then go further under a new regime? While you can have a whole lot of rules, regulations and standards for landlords to comply with, that doesn’t mean they will comply with them.

That's what we have law enforcement agencies for.

And those enforcement agencies didn't help with identifying his lack of compliance either. He plumbed in his own gas appliance when he didn't have the qualifications to do so. Did he know he needed a qualified plumber/gas fitter? Maybe, maybe not, but the courts thought that he ought to have known and have convicted him.

In theory rent paid by not-on-the-lease tenants to the leaseholder is taxable income, but the rent paid by the leaseholder is not a deductable cost.

It's not income, it's a contribution to a shared cost. Do you have to account for income and expenses if one person buys a meal in a pub and the rest chip in? Or if you give a friend a lift and they pay for petrol?

The IRD has guidelines which are easily accessible by googling something like "income from boarders

You mean the link I put in that message? Yes, and a key requirement of "boarders" seems to be that I'm providing food (and furniture?), which I'm not. So those rules don't apply as far as I can tell. The PropertyTalk forums suggest the shared costs model has to be used, but also that the situation is not well defined by the IRD. I would hate to be the person who'd been using the boarder rules and got told the shared costs rules applied (receipts? What receipts?), especially since I'm not the property owner so the shared costs model may not even apply. I mean, presumably it does and in 25 years no-one has ever asked, so it's probably a theoretical issue.

All the advice I've been able to find starts with the suggestion of putting everyone on the lease and wanders off into irrelevance from there. "what to do when no current resident is on the lease, your only contact for the landlord is a bank account number and the hot water heater has stopped working" is just not covered. What we did is get it fixed and take the money out of the rent. A couple of months later a grumpy letter ("The Tenants, 123 Here St") arrived in the mail, we posted back a copy of the receipt (to "Bromsky Partnership, PO Box 123") and never heard from them again.

Rich: yeah, the gap between what we do in practice and the legal theory is a bit vague. But when the gummit demands that I get a "friendship warrant of fitness" and starts hunting down people who don't pay for their round your example will become much more immediately relevant.

Did he know he needed a qualified plumber/gas fitter? Maybe, maybe not, but the courts thought that he ought to have known and have convicted him.

Which is what I think they needed to do. I've seen enough poor repairs and just plain illegal stuff that I've got no real patience with the "I am too ignorant" defense. Our legal system specifically disallows that defense in almost all situations anyway (and for good reason). The main time you can use it, BTW, is "I am too stupid to be able to understand the law" which few people leap for when under pressure.

There are greater issues around building and building maintenance here than just those of being a landlord. The govt has made significant changes to the Building Act which moves responsibilities away from councils and to homeowners and builders. Builders should know these but there has been limited education campaigns to the trade. And none to consumers. There is confusion around electrical work. There should have been none around gas - this guy doing his own work shows what a moron he is and it seems the punishment is on the light side.

The fact is, renting or buying a house carries significant risk for your health: asbestos, meth labs, dodgy DIY work, limited insulation, leaky homes. The state of our built environment is often appalling. But there's no political commitment to sorting it out because not enough people make enough noise and when we build, we're happy, for the most part, to abdicate responsibilities to our building professionals, who are often not.

I publish education guides for homeowners who are building and I remain frustrated at the number of people who willingly choose ignorance when it comes to spending half a million dollars on building themselves a house. Shortsighted and stupid.

As Mark has alluded, this seems more like a general "she'll be right" problem rather than a landlord problem. It wouldn't have been any less tragic if it was a home owner who did this to their own family property.

If you look at Energy Safety's statement, they encourage all property owners to ensure gas installations are safe, not just landlords.

It is amazing to me the number of houses that are sold with additions that have not obtained building consent, or have bad DIY jobs. But people seem to buy them notwithstanding

Did he know he needed a qualified plumber/gas fitter? Maybe, maybe not, but the courts thought that he ought to have known and have convicted him.

In this specific case, it was entirely reasonable for the court to have reached the conclusion that he ought to have known, because the guy’s a drain-layer. Working with plumbers/gas-fitters is a routine part of his job.

ETA: The law is phrased in such a way that it’s not a person “reasonably ought to have known” was likely to cause serious harm/property damage but, rather "reasonably likely to cause said harm/damage”. It’s a significant distinction, because it means most mortals could plead ignorance and get away with it!

That’s what we have law enforcement agencies for.

Law enforcement is normally only applied after something goes wrong. Sure you could report a dodgy landlord, but in renting situations where your livelihood’s on the line, and when your next rental might strongly depend on good references from your current landlord, there are all sorts of conflicting priorities which might mean tenants don’t want to report sub-standard living conditions to authorities.

In some other domains, like maybe truck-driving, or (I dunno) mining, some branch of the government typically appoints inspectors, with strategies like systematic or random compulsory checks, to pre-emptively ensure that those in the industry are actually following the rules. Obviously with mixed results given some high profile incidents, but that might have nothing to do with the idea being bad.

As there seems to be reason to believe that many rental properties aren’t up-to-standard, and if the problem of identifying the rental properties to begin with could be solved, would there be any feasibility in operating a regular inspection regime? Or is that likely to be so wildly expensive that nobody would go for it?

I’m sure many landlords would despise any such idea and fight tooth and nail against it, claim things like a giant waste of money and warn that nobody would provide rental accommodation if they were being forced to obey the law, yadiyadiya.

In this specific case, it was entirely reasonable for the court to have reached the conclusion that he ought to have known, because the guy’s a drain-layer. Working with plumbers/gas-fitters is a routine part of his job.

Every gas appliance I have ever bought has it clearly stated that qualified gasfitters must instal and maintain the appliance. Every salesperson has made it clear that a gas-fitter is essential. As you say, drainlayers and all building trades don't touch gas unless they have a ticket.

"Why a renter died ..."

My inner pedant yells "tenant"...

at least you didn't say she passed away ....

qualified gasfitters must instal and maintain the appliance.

I did once hide behind a concrete wall as two very unqualified people used a cigarette lighter to figure out if a gas bottle was leaking.... Then there was the time two downstairs neighbours tried to figure out whether their gas bottle was empty or not by taking it out into the stair well, opening the valve, and emptying it....

Law enforcement is normally only applied after something goes wrong.

Yeah, I dunno about that. They do education campaigns to try and persuade people to not drive drunk and/or slow down... Ideally the various government agencies should start with education/information campaigns, then administration designed to actually make it easy for people to go about their business lawfully (oh, stop laughing!), and resort to prosecution only as a last resort. Insert your favourite mix of cliches about fences at tops of cliffs, ambulances at the bottom, prevention being better than cure, etc. Of course, ideally prosecution should never be necessary, kind of an internal governance version of the Daoist ideal of a state having arms, but locked away where nobody can see them and never needing to use them.

Every gas appliance I have ever bought has it clearly stated that qualified gasfitters must instal and maintain the appliance. Every salesperson has made it clear that a gas-fitter is essential.

However, they also tend to state, from memory, that failure to follow these warnings may result in serious injury or death. The wording of the Act, "reasonably likely to...", means that a total cop-out is available to anyone who isn't in a gas-related trade: "I didn't think it was likely to happen. And you can't prove otherwise!"

I’m sure many landlords would despise any such idea and fight tooth and nail against it, claim things like a giant waste of money and warn that nobody would provide rental accommodation if they were being forced to obey the law, yadiyadiya.

When market segments like housing operate like cartels, you get that sort of thing. It’s gotten to the point where it’ll likely take something truly cataclysmic to pop the housing bubble, like the outbreak of war or a 2nd Great Depression. Other than that, the best we can hope for is inter-generational change.