Philip Macalister: Investors right to claim tax benefits but wrong to rort system
Landlords need to be careful of their claims. Photo / APN
Most property investors are pretty sensible about what they do, but sometimes, as in a recent case reported by the Taxation Review Authority, they are given a bad name.
The decision from the TRA ruled that an investor could not use losses from her rental property to claim Working for Families tax credits because she was operating her portfolio in a way that amounted to carrying on a business.
Someone doing this to claim credits could conceivably get about $3000 a child on an annual basis.
What should be no surprise though is that Inland Revenue considers as few as five properties to be a business.
Property investors aren't just buying an investment when they buy a house. They are essentially setting up a business to provide a service to customers.
That service is accommodation.
Investors are buying and renting property to generate income, capital gains or both.
And they deserve to for the risks they take on, including managing tenants.
The TRA ruling is a sensible one and has been welcomed by the New Zealand Property Investors Federation. However, the ruling should not just be a warning to landlords.
Others, such as farmers, reportedly do similar things to enable them to claim Working For Families tax credits.
Some may argue that these people are rorting the system, but they are not. They are being rational.
This is the way the Government has set the rules and people, naturally, will look for ways to benefit from them. It's what you should expect in a capitalist society.
However, it is not a good look when you get caught like this.
Philip Macalister is the publisher of the NZ Property Investor Magazine and www.landlords.co.nz
The damned truth is, such "rorting" has been going on for decades and earlier, and it is still happening now, while the same types of people run around bashing beneficiaries, if they may have something they feel, they should not be entitled to.
It proves to me that NZ is an increasingly divided society, where most look after number one and forget the interest of the whole country and society.
Also are there naturally employers underpaying some people, like it was recently exposed, particularly affecting new migrants, desperate to prove themselves and join the job markets. Also are foreign students exploited, same as "home stay boarders" (although there are more checks now), and the list goes on.
Yes, while rules allow some things, they also allow a beneficiary to engage in some activities, to participate in social life and similar, as the law allows it. Earning a bit extra is allowed - to a limit.
Yet many frown on them unfairly for petty reasons.
I met a fair number of real estate agents, who have owned up to five properties themselves, which they rent out for extra income. Now that you mention the figure of 5 properties to be considered running a "business", it seems, they may be "working" the tax *system* in yet another way, to avoid tax liability.
How many are there, who live just off a rental property they bought and let out for rent, ensuring they have a sound income that enables them not to work, if the real estate sales may go down? I bet there are a fair few, who have and continue to get the best of both, buying and selling, and renting out as well.
And while some landlords surely will be responsible, fair and make efforts to maintain their properties, I've come across endless cases, where there are never any improvements made, where repairs are dodged, and where damp homes are not being insulated (even with subsidies offered), at the same time exorbitant rents being charged in much of Auckland now.
$ 300 for a 1 brm, $ 350 to 450 for a 2 brm unit and more for larger homes, how nice landlords we have?!
Then for years later topping up the mortgage because the rent didnt quite cover the costs. I didnt mind because I saw it as one type of investment vehicle that would set me up for the future. It is a business as you say and like any business I have the right to claim business expenses.
The expenses are the cost of the loan, maintenance, insurance and rates. The income is rent. Simple. I agree that if someone has enough money to own a rental property then getting "working for families" is taking things a bit far.