Charity’s work restricted by new rules for property investors

Property investor Chris Leatham set up a charity to help people in need, but he says the Government’s new tax rules mean the work of his charity will be severely hindered.

He and his partner established the charity in late 2019, and this year alone it had given out $150,000.

Those funds had largely gone to youth causes in their region, including a low-decile school in Wainuiomata and a youth charity in Ka¯ piti.

But one of the Government’s new tax rules means investors would no longer be able to reduce the tax they pay on their rental income by offsetting that income against the interest charged on their home loans.

Leatham, who was a partner at PwC for many years, said the change would restrict the charity’s ability to get money to people who need help.

‘‘The charity borrows money from our property investment business and then makes money from its own property activities.’’

Under the new rules, his property investment business, which he had run full time since he left PwC in 2019, would have to pay an extra $60,000 a year once the changes were phased in.

That meant his tax rate would be about 50 per cent, and it would affect the amount of money that went to the charity, he said. ‘‘Our ability to continue to lend money to our charity so it can operate this way will be severely hindered by the interest deductibility changes.’’

It was hard to see how the interest deductibility changes would benefit anyone, particularly as many investors owned properties that would never be bought by first-home buyers, Leatham said.

Examples of such properties were multi-unit properties that were needed for renters. Leatham had five such properties, including a 10-flat block in the Hutt, an eight-flat property in Christchurch and a four-flat property in Wellington.

He said none of those would ever be bought by an owner-occupier.

‘‘Such properties should be exempt from the changes around interest deductibility. That would mean investors would be more focused on these types of properties and less focused on properties that appeal to first-home buyers.’’

If the Government wanted to help first-home buyers, a better way would be to enable them to have lower deposits, as it was the 20 per cent deposit requirement that was the problem for many, Leatham said.

‘‘First-home buyers should be allowed to get 95 per cent mortgages, providing they meet the bank’s serviceability criteria. And the Government could guarantee the 15 per cent of the loan over the 80 per cent offered by the bank.’’

He said that while there would be a small amount of risk to the Government, the move would give an advantage to first-home buyers without being ‘‘grossly unfair’’ to other buyer groups.

‘‘Interest deductibility is not a loophole; it’s a legitimate business exercise. Presenting it otherwise is outrageous, as is the way property investors have been targeted and presented as bad people.

‘‘And announcing this change out of the blue, without any consultation – it’s like another underarm bowling incident but this time from our Government.’’

Leatham said that while investors had taken a big blow, it would leave them down, not out.

‘‘Property is still the best form of investment, in my view.’’

‘‘It’s like another underarm bowling incident but this time from our Government.’’ Chris Leatham