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Labours 2018 Budget has now been released by finance minister Grant Robertson. Here's how the budget will affect the housing industry and the policy changes it comes with.
Housing and Taxes: The two elephants in the economy
It is no surprise that Labour has clearly made housing a key budgetory priority; the announcements and policy changes thus far reflect that. This includes the Kiwibuild programme – 100,000 affordable houses in 10 years and a pledge to boost public housing stock (state houses) by an estimated 6,400 homes over the next four years. It has allocated more than $634m for operating funds for housing, with new spending including $7m for “front-line housing resources” this year.
Other policy changes include the extension of the Bright-line test from two to five years as well as introducing restrictions on foreigners looking to buy residential property in New Zealand.
The Bright-line test taxes the proceeds of selling a residential property that is not a person’s main home when the property is sold within the Bright-line period (5 years).
This extended scheme will allow homes to be more affordable by reducing property speculators.
However, the new extended Bright-line test goes beyond taxing property speculators. The new Bright-line test effectively taxes anyone who owns an investment property, a holiday home or even a second home and sells it for whatever reason. Including foreseeable events such as health, financial and life challenges.
To further supplement the reduction of property speculators, Labour has also announced the banning of negative gearing by ring-fencing tax losses arising from rental properties.
This prevents property investors and landlords from offsetting losses arising from their rental properties against income from other sources. Mainly affecting long-term property investors and landlords who suffer losses when they have unoccupied rental properties.
Ironically, for speculators and those subjected to the Bright-line test, it only has the effect of deferring claims of losses against any income derived from selling land.
The 2018 Budget also gives Inland Revenue $31.3 million of operating spending over the next four years, including $23.5 million to ensure outstanding company tax returns are filed. It also includes $3.0 million of operating funding over the next four years to analyse the potential to improve tax compliance in specific industries through the use of third-party reporting and withholding taxes
Labour claims these new initiatives are to make the tax system fairer and a crackdown on potential "tax dodgers". The Government expects an extra $726.3 million of revenue over the next four years due to these initiatives.
The Tax Working Group will also be working on its own initiative to come up with proposals to make the tax system fairer. Including the introduction of a "comprehensive" capital gains tax approach which excludes the family home.
Although Labour promises no further taxes or tax increases, there are plenty of changes in place that will ultimately increase the government's tax revenue overall.
With the 2018 Budget set in place there are still many questions yet to be answered. Even with this much money, constraints usually do not go away.
At the moment there is still a lack of detail and clarity in how all these announcements will play out. Especially the synergies between private sector developers, investors, community housing sector and more.
With all these changes coming into the housing industry, for landlords and property investors, staying compliant means keeping up-to-date faster with new laws, your finances and your books!
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