Brace yourself

The impact of a law change to ring-fence rental property tax losses could be huge and sudden, because owners absorbing loss with no prospect of gain will sell.

The Taxation (Annual Rates for 2019 — 20, GST Offshore Supplier Registration and Remedial Matters) Bill that introduces ring-fencing of tax losses for rental properties passed its first reading today.

Based on comments from Inland Revenue reported yesterday, there could be around 104,000 private rental property owners who lose money every week, expecting that loss to reduce their tax liability while hoping to sell in the future and make a capital gain. If rental property tax losses are ring-fenced from April 1 next year, and if capital gains are to be taxed, as the government is pondering, the rational option for negativelygeared owners is to sell now.

If each of these owners have two properties, and if each sell to owneroccupiers, that could take 208,000 properties away from renters looking for a home.

Of course, this is speculation, but the problem is that neither Revenue Minister Stuart Nash nor Housing Minister Phil Twyford know how many owners are negatively geared, so they do not know the impact of this change.

Owners won’t necessarily protest about this rule change. They will look at their financials and either absorb the loss, increase the rent, or sell.

The prospect of a capital gains tax makes selling now the preferred option.

The ministers should provide evidence of both the benefits and the costs of this proposed law change. Any failure to do so would show that we have a government running on religious zeal instead of sound evidence.

The known figures are that there is a total of 588,700 rental properties in New Zealand, of which 64,500 are state or social housing, leaving 524,200 private rental properties. The number of private rental property owners could be 262,100, assuming each have two properties.

The number who are negatively geared may be deduced from a statement from IRD that 40 per cent of owners had rental losses in any one year.

Stop the War on Tenancies aims to empower both owners and tenants in the face of ongoing government ineptitude with housing.

"The ministers should provide evidence of both the benefits and the costs of this proposed law change. Any failure to do so would show that we have a government running on religious zeal instead of sound evidence."