Property editor of the NZ Herald

Overseas investors escaping tax: Twyford

Offshore property investors reap big NZ tax breaks - Twyford
Phil Twyford, Labour's housing spokesman. Photo / Supplied.
Phil Twyford, Labour's housing spokesman. Photo / Supplied.

More than a third of people overseas who own New Zealand properties are escaping the tax net, an Opposition MP says, depriving the country of about $100 million tax.

Phil Twyford, Labour's housing spokesman, said investors are charged tax on rental incomes but our negative gearing system which allows tax writeoffs for expenses is being used by "offshore speculators" to the point where 35 per cent pay no tax at all.

"The average offshore speculator pays just $478 in tax on their rental properties per year compared to $818 per year for New Zealand-based landlords," he told the Herald after putting questions to Inland Revenue Minister Michael Woodhouse.

Twyford said he was stunned to find that 23,000 foreigners with New Zealand properties reaped $100 million net rental income for the March 31, 2015 year, yet paid only $17 million tax on that.

"That's wrong. Most New Zealanders would find that offensive. These speculators are not breaking the law and the Government sees no problem with negative gearing.

"But hard-working New Zealanders get up every morning, go to work and pay their taxes while these investors are pocketing hefty tax breaks to subsidise property speculation," Twyford said.

"Around 10,000 offshore investors have reported total losses of $300 million on rental properties. Depending on what tax rate they are paying, that could mean a tax write-off of up to $100 million," Twyford said.

Of the 23,000 non-New Zealand tax residents with properties here, 8000 or 35 per cent declared overall tax losses.

Woodhouse confirmed the data came from his office and the numbers were correct but rejected all Twyford's claims.

Revenue Minister Michael Woodhouse. Photo / Supplied
Revenue Minister Michael Woodhouse. Photo / Supplied

"The idea that there's widespread tax advantages given to foreign property investors fails the sniff test because a good portion will be New Zealanders working overseas," Woodhouse said.

"The rules are consistent: if you earn income in New Zealand - whatever you earn and wherever you live - you have to pay tax here. If you own a property in New Zealand but live overseas, you will pay tax on the income you earn on that property," Woodhouse said.

But Twyford said the numbers spoke for themselves.

They are using negative gearing, he says, which allows them to claim a tax deduction on their expenses such as interest payments and maintenance costs.

Twyford acknowledged that the data would include some New Zealand citizens living overseas.

"The average offshore speculator pays just $478 in tax on their rental properties per year."
Phil Twyford

Andrew King, Property Investors Federation executive officer, questioned the data from Woodhouse's office which he said was only for people, not other entities.

"This data is also only individuals. It doesn't take into account the companies and trusts that hold rental property," King said.

IRD data from 2013 showed that tax was actually paid on $1.5 billion net rental income, King said.

"The average rental income per year [per property] is about $20,000, less the costs of running the property - mortgage, insurance, rates, water, repairs, property management, etc - at $16,000 leaves a profit of around $4000 which tax is paid on," King said.

"This is the same as any business. Gross profit less expenses equals net profit which is taxed. It looks like rental property owners are good tax payers.

"Regarding the overseas owners not paying tax, the same tax rules apply to them as it does to all rental property owners. If we are going to let them buy New Zealand rental properties, it seems fair that the same tax laws for New Zealand providers should apply to overseas providers," King said, agreeing with Woodhouse that many overseas owners were expat Kiwis renting out their New Zealand homes.

Who owns NZ rental properties?


• 214,000 NZ tax residents
• 23,000 non-NZ tax residents, including Kiwis living offshore
• 700 residency not identifiable

Who claims tax losses?*


• 98,100 or 41% of landlords with NZ properties declared tax losses in 2015
• 90,000 of those were NZ tax residents
• 8000 (35% of the 23,000 non-residents) were non-NZ tax residents. So more than a third of offshore landlords got tax breaks
• 100 were non-identifiable

How much tax do landlords pay?


• The Government's rental property net tax was $188m in 2015
• $175m came from NZ tax residents and $11m came from non-residents (offshore)
• The remaining $2m came from taxpayers of unknown residence

Source: Phil Twyford after Parliamentary written questions to Michael Woodhouse

*Declared overall tax losses (ie paid no tax on those rental properties or claimed a tax credit)

- NZ Herald

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