THE GOVERNMENT looks likely to escalate its tax attack on investment property by clamping down on the way losses can be offset against other income.
There is already a wide expectation the May Budget will axe depreciation on buildings, one of the tax reform options raised by the Tax Working Group (TWG) in January, along with cutting income tax and raising GST.
Adolf has long considered such a move fair but in past conversations with Gooner, my co-author has maintained it is not possible to separate a taxpayers PAYE liabilities from his business related tax liabilities and therefore the move is not possible. Gooner also suggests that one does not need an LAQC to arrange these tax write offs and Adolf is not sufficiently versed in accounting law to argue one way or the other. The figures would suggest otherwise.
According to IRD, the number of LAQCs filing returns more than doubled between 2003 and 2008, from 63,400 to 129,900, and the total tax losses relating to residential property investments owned by LAQCs increased nearly 800% over the same period, rising from $105m to $812m.
However, I'm inclined to think he is right on the latter point, so the Gummint will need to simply focus on PAYE payments and forget about LAQCs..
It really appears quite simple to me.
All Blenglish has to do is to tweak the law so as to require (a) all PAYE to be deducted at source and (b) those seeking tax deductibility for rental property expenses to declare their salaried income on their tax returns along with the amount of tax already paid on that income and (c) disallow return of PAYE to the tax payer.
If a tax payer incurs a loss on his rental property, then he will simply need to increase the rent or sell the property. No more taxpayer subsidies distortion of property rental and sale values. What's so hard about that? Just have a thought for all those people currently renting who suddenly will be able to buy these properties as their values decline due to the removal of taxpayer subsidies. That's got to be good for lower income people.
The political ramifications are delicious. Can you imagine Phil Goff trying to spin this package as a gift to rich pricks? Can you imaging how much this would cost the Bilious Bitch via her rental property empire?